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Where does it list dates, aside from $3M+ in cash paid within 2011? What page? Other than that, I find only that the $40M+ will be used toward land use purchases as specified in the S&P agreement, which I don't see attached.
What I do see is, (p28):
Disposal proceeds receivable
44,295,612
listed under other receivables in current assets.
Because the dairy sale and land use purchases are so directly linked, I wonder if the transactions are similar in any way to 1031 exchanges in the U.S. Not necessarily any tax advantages -- tho there may be, but some sort of reason or advantage that the transactions are so not separate.
Aren't the dairy proceeds carried in current assets, under other receivables; therefore, less than a year?
It would be very useful -- if you care to -- compile a list of questions like this one (and every other you may have) to ask the company. Perhaps someone attending the Sweden presentation could seek clarification, as a first step. By the way, I believe that the second presentation in Sweden was scheduled before the dairy sale, as was a second Jordan Group trip to SIAF's facilities in China.
As for long term A/R of $8.4M, as of 12/31 they also listed $12M+ of current A/R. I am surmising here, but I believe the $12M is actual sales from operations, and the $8.4M is related to some past sale, with installment payments.
Regardless, here's the A/R accounting policy:
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of
accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic
trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on
a specific identification basis.
The standard credit period of the Company’s most of client is three months. The collection period over 1 year is classified as
long term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for
doubtful accounts as of December 31, 2010 and December 31, 2009 are $nil.
Drexion,
Let's see.
1) what you think of my tone is totally irrelevant, certainly to me
2) please post anything you think I've "glossed over," or any negative you perceive. I'm happy with healthy debate
The second half will show phenomenal growth in the two franchise modeled businesses that are targeted to be spun out in 2013, fish and cattle. If those plans are executed, SIAF is worth many times its current valuation. Plain and simple. This isn't rose colored, it's guidance. So, to me, it's a question of credibility and meeting milestones.
I've said that I'd have preferred the dairy would have been sold now to maintain stepwise growth, every quarter. I've also posted that I think the price paid for new land use acquisition needs to be explained. The true milestones will evidence in financials starting in the third quarter. But we can see the prerequisites with new cattle houses being built and fish contracts with large capacities being signed. More will have to come, and be aired. In Sweden??
You mentioned $500k cash balance.
Low, it's true. Expected, maybe not that low, but yes very much expected. The company is in a rapid expansion mode. It clearly sees major opportunities to grow its two flagship businesses very fast, and it is making major investments to do so. It is remaining profitable while doing so from quarter one, even without 3/4 of 2010 revenues. And they've guided considerably growing profits 2011 vs. 2010.
It seems pretty clear to me that they've are making a serious effort and investment to build a much bigger company, with infrastructure and business models that will grow profits in 2011, but really capitalize on in 2012 and beyond. So, low cash balance is pretty much expected, since cap ex is more than their whole market cap.
I do expect Q2 and subsequent quarters to show higher cash balances.
Yes, they paid back some debt with shares. Perhaps those people sold as you suggested. That would be positive, if its already occurred. Weren't these loans known before?
Instead I posted about subsequent events, the main one being that the dairy sale is for $14M more than previously reported. I think $14M of proceeds previously unreported outweighs $2M of known debt repaid with shares.
No, earnings will not come close to $.20 in Q2. The HU revenues won't hit until Q3 and asparagus will just be newly planted.
I believe that the goal is to replace the dairy revenues in Q2, so expect about flat YoY.
However, according to guidance, the third and fourth quarters will show greater than 50% YoY growth, accomplished with absolutely stunning growth in the fish and cattle businesses, the true future and potential of the company.
Good thoughts. Hope this is the market.
However, I imagine that the medicinal asparagus is highly concentrated, like aroma therapies, and/or processed somehow.
Nonetheless, the dried raw material may well fetch good prices. And perhaps SIAF intends to capture more downstream revenue over time.
Thanks. Makes sense.
Also, conforms to a generalizable point that the flower, cattle, and fertilizer businesses will all realize improving gross profit margins through economies of scale, and vertical and horizontal integrations.
Yes, second half, like the great preponderance of revenues from all the business segments. Revenues have always been seasonal.
The company announced major, sweeping, really transformational changes last quarter. I think that your selling was a reasonable decision, because the market place may well look only at this and the the next quarter. Fact of the matter is I wish the dairy sale would have transpired now, so that very high growth in financials would have been booked without any blips.
But the real world doesn't comply. I'm more optimistic now then when the changes were announced that they are and will be received reasonably and favorably, which I believe will be clearly in evidence as fundamentals report over time, and as the company takes further opportunities to explain their models.
The market has had an hour to react to this lowest quarter's reporting (doubt any trades even saw the really good $14M dairy news) with no real reaction. If there isn't a conference call, there will be company explanations and presumed affirmation of guidance at the Stockholm presentation.
The more I think about the trades that the company's made, the more I like the second half and 2012+ prospects. I think they are dramatically improved versus pre-dairy sale. Especially now that we've learned the dairy sale was for $45M.
So, if the market does look beyond the first half, it should see stunning YoY and sequential growth. Pretty tough to predict short term markets -- and investors are certainly in a skeptical mood about this space. So these second half numbers may have to be realized to be rewarded in the stock price. I can wait.
Or who knows, perhaps the uplisting comes through; another fish contract is announced; the dividend is raised; they announce a share retirement or issue only 1/2 the new shares announced last quarter at $1.50 while declaring no need to issue any more equity until 2013, and then only through spin offs; or any number of other possibilities.
Those proceeds are the major impetus for a capital development program exceeding the company's entire market cap. Think about that. These are bold and confident plans.
And the plans uses subsidies and grants to augment investment cash immediately increasing NTA, and then generating tax free income. Meanwhile, they are building the infrastructure for continued return and meeting criteria for very low interest loans to spur even more growth in 2012, when the plan calls for leveraging the models.
I thought I heard $8M on the last conference call. However, I rechecked and it was not on the call. In fact, the target was to replace the dairy revenue from day one. They fell $1M short. Not great, but not terrible either, considering the dairy was 3/4 of their business. They guided that despite jettisoning the dairy business, revenues will grow ~50% YoY, and that the growth would be in the SECOND half.
The "extra" $14M they receive for the dairy is by far more important news, imo, and more than offsets any perceived negative for $.015 income. Obviously, this is $14M less they will have to come up with for the new land and capital development.
The cost of the land is an issue. I agree. I think the prices paid need to be explained. But I trust management, and it is clear that projected cash flow and income generated from the business uses for the land justify the purchases.
As for asparagus -- while the price may be lower, for all I know, the gestation period to maturity may be six months vs. 3 years for HU, and the cost to plant may be less. I have no idea. Don't see why they'd elect to plant asparagus rather than HU flowers, if the payback is dramatically longer/lower.
As Strindberg pointed out, there's at least 100% upside to the HU flower projections, if weather permits near capacity harvest. This increase would be delayed on the income statement (but not on the balance sheet)to the extent they chose to defer 2011 harvest to 2012 sales.
I do think that when they develop distribution networks for "one-stop shop" in 2012, it's a good idea to have diverse products.
Curious if anyone sees this meaning retail?
Yes. makes sense that that's the asparagus land, which is 150 acres I believe. I'd still like to get a better understanding of what determines price per acre for these purchases.
On the last call, Solomon mentioned $18M capital development costs for HU and asparagus, including the $7M. So, that's a lot of planting for return in 2012 and beyond. Anyone know if asparagus has the same payback growth curve as HU flowers?
The "extra" $14M for the dairy is the most major piece of news, imo.
And tidbit # 3, also page 35 under subsequent events:
A Sino Foreign Joint Venture Company, Linli A Power Agriculture Co. Ltd is established, of which 51% and 24% equity interest are owned by SJAP and SIAF, respectively, and the name is still pending on the approval of the PRC authorities.
On April 5, 2011, the company acquired land use rights for two lots of land in the Guangdong Province and Hunan Province , PRC of 64.99 acres and the leases expire in 2030 and 2054 in the PRC for $5,032,426."
And, related, page 52:
"On April 05, 2011 development work on the new cattle farm was started and as at May 10, 2011 corresponding work in progresses are reported as follows:
The main entry road to the farm's property has been completed.
A Substation to provide electricity to the farm was built and installed and in operation.
All land and has been plough and turned ready for seedling.
Internal fences to sub-divide the farm into small blocks have been carried out.
Office and staff quarters are being constructed."
Guessing that work has begun to expand the cattle business on land announced last quarter.
Tidbit number 2, page 35, related party transactions:
"Mr. Rui Xiong He , director of Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd, subsidiary of the Company
During the three months ended March 31, 2011, Mr. Rui Xiong He sold his land use rights to the Company for $7,042,831."
Okay, what I think this means is that SIAF bought the remaining 25% of the flower business it didn't already own. I am definitely not sure.
Anyone?
So the question arises:
Since they are using the proceeds to purchase tracts of land for $52M, is that $52M a constant, or also subject to a restatement of assets?
Because, if the $52M is a constant purchase price, then SIAF will have to fund $14M LESS for the land use purchase than it thought it had to.
Right?
Here's a nice tidbit on page 51. SIAF is getting $45M for the dairy, not $31M!!
"The purchase consideration for the Sale Shares shall be a sum of US$45 million (hereinafter called “the Purchase Consideration”), to reflect the actual value of ZhongXing as follows:"
I don't pretend to fully understand some of these asset and land purchases and sales. But what I am gleaning -- and could definitely be wrong, and would appreciate any advice on this from anyone knowledgeable -- is that they are related to an asset value. That is, in America, we would agree on a set price in a P&S agreement. It appears that for this transaction, they agree on a variable price that is related to the asset's value -- perhaps with some percent premium, and that the asset value is also related to the expected or historic cash flow.
I think this is also true of land purchases, which is the next tidbit.
I think it's exactly what was signaled, and actually on track for guidance, though not necessarily on the face of it.
That is why I'd definitely prefer to see them issue a press release concurrently and also have a conference call without any market open time lag.
Went back and read it;
The subject annual report, semi-annual report, transition report on Form 10-K, Form 20- F, 11-K, Form N-SAR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date; or the subject quarterly of transition report on Form 10-Q, or portion thereof be filed on or before the fifth calendar day following prescribed due date; and
You're right, it says calendar days, But I'm really not sure what it means. Was the 15 days following prescribed due date 5/15?
Pretty sure it's Monday, end of day. This is because 5/15 fell on a Sunday, so effectively 5/16, and the extension was 5 business days.
I think/hope they are preparing a conference call concurrent with the release, as well as the Stockholm presentation.
Would be nice to see a press release.
Guess yesterday's seller changed his mind :)
Great. Looking forward to your posting about it. I've sent you a list of questions I'd like to have answered, if you see fit to ask at the presentation (assuming a Q & A session), and if they aren't answered in a conference call first.
I am not sure that it is Chad's role to explain major business operations, at least not in a public forum. And I'm pretty sure that he can't make any statements that might be construed as forward looking. He does a very good job being responsive, and guiding SIAF through a cost effective listing process, as far as I can see.
However, the company can explain strategy and anticipated benefits in a conference call open to all.
SIAF is preparing new IR and roadshow materials, videos, invitations, etc., and will present and be available in Sweden late this month.
I'm hopeful and expect a conference call with the upcoming release, and perhaps we'll get an update from someone in Sweden after the presentation there, and perhaps JF's visit to China.
As the Jordan Fund recommends long term holdings, I'd expect a ringing endorsement from them.
The company announced sweeping changes in the last quarter, and did a fairly good job in explaining them, imo. Principal benefits include:
1) NTA expanding to $3.00/share in 2011
2) Concentration on faster growing, more scalable businesses
3) $72M of capital development, creating a much larger, stronger asset base, which will return income immediately, and massively starting in the second half and beyond
4) A new farm contract was signed, and will have a capacity of 2,000 tons, which equals 8 farm units
5) cash from equity issuance will be raised only at a share price of $1.50 or higher
6) Immediate GAAP and cash boost of $8.4M from dairy sale cap gains
7) Preparing infrastructure for, and expecting "substantial" new grants
8) HU income guidance was bases on a yield 1/3 of capacity, weather permitting
However, even as the short term dairy revenues will be immediately replaced, and guidance is strong, the huge growth that may have been anticipated in a straight line is now actually stronger, but will be reflected in financials starting in the July quarter.
For these reasons, I totally agree that the company must do a thorough job of explaining all the benefits of the transformative measures it has undertaken, with special explanation of exactly how the fish business is extremely scalable, and ALREADY achieving two to three year sustainable triple digit growth!
Of course, the report extension was known, because there was no announcement previously when earnings would be out, though 5/15 was yesterday.
Perhaps, today's sellers don't think they'll report in five days.
if true, and if market fluctuations can be explained anyway, today's drop will be recovered when they do report. And perhaps more than overcome, imo, if the company takes the opportunity to convincingly explain the specifics behind all the benefits listed above.
Of course, an update on new farm contract discussions would also help.
Do you have any idea how ludicrous it is for the officer to say a wrong number for such a basic thing?
Either he's right, because of something I don't know. or he's idiotic. It also casts doubt on every other number.
You don't just guess.
I agree with you to some extent.
However, management must set expectations properly. And meeting expectations next quarter would be very helpful, prior to any real Durimu update.
btw, about 98% sure I heard Mr. Jiang say that FD share count at the end of the second quarter will be 39M. It's 31.4 now with about 4.6M more for the acquisition.
So, where do the extra 3M come from? Do they have any warrants expected to be exercised?
But Tian's revenues have nothing to do with NEP's oil production at Jilin.
Tiancheng refers to contract drilling, not drilling their own fields in Jilin.
Here's a company that one quarter ago said:
"Tiancheng has experienced a resumption of regular drilling activity in the 2011 first quarter."
That quote was issued 3/15, when the first quarter was all but over!!!!!!
Then, they fall about 40% short because of "a holiday." Guess they didn't know about the holiday then???
So projecting out a mere 9 short years, well, ...
The company has plenty of working capital, is cash flowing well, can easily fund development, has a promising new field (we think), but they still have credibility/communication issues.
What caused this change? Is it related to the Form-10 in any way?
Bear,
In any case, I agree with you that ticking off milestones toward spinning out the fish business is the proper road map toward much higher valuation.
Yet,
If SIAF issues 11M shares end of September, their weighted average shares for the year will increase by 1/4 of that number, creating a fully diluted average share count of 65M for 2011. This does not count retiring any shares.
65M x $.39 = $25.35M. G & A for 2010 was $3.5M.
Guidance calls for gross profit of $30.8M, and there are no income taxes.
So, looking at these numbers, $.39 perhaps seems a little high, but if it included $8.4 dairy gain, it would seem clearly low.
What am I missing?
Thank you.
Of interest, the guidance for the fish business is based on current and planned new farms, including the new contract with a capacity of 2,000 tons. This is the prawn farm.
I am interested in what they feel comfortable for forward guidance. This may mean that the guidance is only for the current farm and the newly contracted farm, if they can construct anywhere near the 2,000 ton capacity in one year. As I recall, the contract was for 5 years, but perhaps they will realize the capacity much sooner.
The question is, what does "Planned new farms" mean. I doubt it includes anything beyond already contracted, or very confident will be contracted. They did say they target four new farms, so maybe those are included in "planned;" maybe not.
This allows for upside to the fish guidance, In fact, they did say "at least" $32M.
That's the good news.
Bad news is that if you look at the gross profit guidance, it's pretty hard to see how they will earn $.39 FD without the dairy cap gain, as Lucky said.
I am double checking with Chad.
Strindberg,
Can you post a link to the entire cc transcript?
Thanks
Further to last post.
Do agree with you that even with 60% earnings growth the more important drivers will be operational milestones that signal sustained growth in 2012 and beyond; most particularly, new fish farm contracts and successful fish sales.
It's my hope that there are many prospective fish farm partners, waiting to see successful operation and sales before signing contracts.
It is clear from guidance, that Sino expects same, as revenues are guided $32M+ from about $4M.
Also, supporting the notion that guided earnings are from operations only-- net of dairy gain -- are $.39 FD -- is that revenues are guided 50% higher, and in businesses with better margins than the dairy.
Several differences of opinion:
The share count won't be 70M in Q1 when the dairy gain is realized.
It may not be for the 2011 year end results either, as that will be average share count over the year.
Yes, I have quite good idea that the guidance is exclusive of the dairy gain, and will confirm with Chad.
As such, earnings will be 60% higher 2011 vs. 2010, which really is good growth; actually stunningly phenomenal, considering they jettisoned 3/4 of revenues.
I would expect the same revenues and operating income in the first quarter as last year. Yes, the dairy profit will add to GAAP, which is good. I think that the share count remains around 62M fully diluted, not 70, as no shares have been sold, Right?
Agree with you about HU upside, and/or holding back inventory. Hope for both.
The guidance did not include the gain from the dairy, so I think your second half numbers are low.
There will be no Q1 earnings from the flower business, which is heavily seasonal.
However, there will be a large upside relative to guidance for the flower business in Q3 and Q4, if weather permits anything to close to capacity crop.
Fisheries and cattle revenues will also show vary fast ramp throughout the year. Recall that guidance and verbiage called for strong growth in the second half.
Basically, they are replacing dairy revenues from day one, and have traded the established slower growing dairy business to fund $31M of development in the remaining faster growing, franchise model businesses.
This will result in a dramatically better balance sheet right away; little or no sacrifice on YoY revenues for the first half; and huge, huge YoY growth for the cattle and fish businesses in 2011 second half and 2012 and 2013, when they are expected to reach a critical mass sufficient to spin out to Asian public markets.
Depends how you look at the upcoming report. Revenues will be low because the business is still quite seasonal, and because basically all of last year's revenues (dairy) will be gone.
However, I expect that fish and cattle will entirely replace the dairy revenue.
So, if the glass is half empty, there will be little or no YoY growth in Q1.
If the glass is half full, all the new revenue will verify vastly faster growing businesses. According to guidance, they will show 50% full year growth, but all tallied in the second half. Meanwhile, the asset base will grow to $3.00 NTA, forming the infrastructure for further returns and collateral for further investment.
How do you think the market would react to flat or even slightly negative YoY rev growth and no conference call?
What do you expect from Q1 earnings, now that
1) the dairy business has been sold,
2) the flower business is seasonal, and
3) cattle and fish businesses are young and growing
Are there any general expectations out there, or estimates?
The average P/E on the Hong Kong exchange is about 15 right now.
Further to my point that no equity raises are needed in 2012:
2011 has ambitious capital development projects, totaling about $72M, including land use, which will be fully paid off during 2011. The cash will come from the following:
1) Dairy sale ---- $31.0 M
2) Equity raise -- $16.5 M
3) 2011 profit --- $25.0 M (at least)
This means that SIAF will be cash flow positive in 2011 by the amount of grants, subsidies, and rebates received in 2011. We already know that they will be substantial. For the sake of argument, let's say $12M, so they finish 2011 debt free with $15M in cash.
Parenthetically, I'd argue that the profits, grants, and/or asset valuations I've used in this example will actually total at least $17.5M to $27.5M more. That's what would be needed on top of the $8.5M dairy sale profit to add $80M to $90M to net asset value, as stated in the last conference call.
I am sure that 2012 will also bring very ambitious capital development plans, though the focus will be on franchising proven business models. If history is a guide, 2012 earnings should be 60% to 100% higher than 2011, or at least $40M, very possibly much higher. On top of this, presumably, SIAF will qualify for additional grants.
More importantly, they will have dramatically improved land, which will have a demonstrated cash flow. I am guessing that this is when the land use rights are most easily used as collateral for low interest loans.
So, on top of $55M cash (bare minimum) available in 2012, SIAF should have the opportunity to borrow tens of millions more, if needed. The only reason they would need to borrow against the land, as nearly as I can see, is if they plan to purchase more land in 2012.
So, there should be no need to raise cash through equity in 2012, particularly in light of plans to raise cash at the parent by spinning out subsidiaries in 2013.
Yes, can get very interesting.
By 2013, the cattle and fertilizer businesses by well gross $50M+, so there's another possible spin out, or candidate for 2014.
I think the difference in our scenarios is that I was saying that shareholders would receive the same percentage shares as used for the IPO, and you're saying that the distribution is not linked in that way.
You're probably right. I am curious how this is usually done.
In any case, I think we agree on how much the unlocked value to the shareholders would be -- a WHOLE lot -- just not on what percent would be in the new FISHCO vs. in the newly imputed value in SIAF.
It's actually remarkable that Solomon made these plans public, because he will be held to them, as any forward looking statement.
I'd like to see him pledge that spinning out the subs is the only further fund raising the parent company foresees, thereby eliminating any new raises in 2012. I don't see a reason for any, particularly in light of the increasing collateral upon land improvement.
In addition, I'd like to see one or two further token shareholder friendly measures to reinforce SIAF's separation from the bad actors in the space.
That would make it a lot easier ticking off the milestones toward the spin outs.
New fish farm contracts become exponentially more important; likewise, validating fish sales, and how quickly new fish farms expand.
The 20/70 was actually the ratio of outstanding shares of SIAF to FISHCO. Figure SIAF at about 70M, and in my example FISHCO has 20M.
If a larger percentage of shares were issued to the Hong Kong exchange, it wouldn't make much difference to SIAF shareholders, in that they'd get more newly issued spun out shares, offset by less appreciation in the parent.