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Net tangible assets to increase to $3.00 per share in 2011. Large grant coming.
Fish farm 2011 rev guidance of $32.2M; gross profit $19.5M !!!
This refers to the dairy sale.
Don't quote me. I think this means SIAF sold the dairy with land use rights subject to the Land Authority's approval, which was given verbally. Also, the Authority agreed to a rebate verbally, but if it doesn't happen, the purchaser must close anyway.
These land use sales are not really different from leasehold property in the U.S.
dc
Clearly you know a lot more than I do about possible restrictions due to filings. But it does appear that there is room for judgment, when Chad has said that SIAF is following conservative legal advice. He's also said that SIAF is very well represented to get through the SEC process successfully.
Agree with your sentiments about Mr. Lee (seen it Lee Solomon and Solomon Lee: maybe that should be a question?).
Clearly, the company thinks they made the right moves, concentrating on the other growth opportunities. So, I expect an optimistic, well reasoned explanation. There's a lot of land, so there are probably long term plans. And not too sure how much detail he can reveal there, nor if he can suggest 2012+ guidance in numeric terms, which is where I suspect the real ROI comes.
Let's not forget the fish contract, which is good in an unqualified way.
Back to $1.80? Question of time, imo.
All depends on the call. I think that digesting all the latest news nets out positive. I expect good explanations.
I have no doubt that intermediate and long term income will benefit. As long as 2011 projected net income is as previously projected, the company is in better shape than before the changes, maybe way better.
The company clearly traded its current cash cow -- pardon pun -- knowing it had another for 2011 income; namely, HU flowers. Did it get enough? Hard to see based on income sacrificed, but not in terms of reallocation of capital. They jettisoned dairy in favor of faster growth in the other businesses, possibly new business, and to improve net asset value.
The new fish farm contract validates that model, where the most income will come from in the years ahead. Would love to hear more positive news on that front on the call.
Wild card is what they are going to use the land for, and how quickly revenues will realize.
Two more things:
1) SIAF now trading at about a 35% discount to total shareholder equity, which rose$12M last quarter, and is expected to rise more with the new transactions
@) Also trading at 4x trailing earnings, 2.5x forward, worst case
Interesting to see if $1.06 to $1.10 hold as after quarterly press release.
Anyone buying here?
Stock price
IMO, the share price now reflects the GAAP earnings and misgivings over the dairy sale.
It does not reflect:
1) 2010 operating income
2) New fish farm contract
3) Dramatically enhanced intermediate and long term prospects of 60% eps growth, even 2011, and especially 2012+
4) Huge automatic growth in 2011 flower income
5) Uplisting progress
Having talked to Chad late last week after the 10-K release, his opinion is that nothing has changed for 2011 earnings. Studying the 10-K, I agree that guidance can be maintained because of the flower business acreage, as well as predictable growth in cattle and fish, as well as unknown plans for the new, highly valued land.
On top of this, the company -- through Chad -- has posted that an already very healthy balance sheet will show even better net tangible asset value. There are a number of ways this can happen, including rebates and governement grants, as we've seen in the past.
I see today's decline as a timing problem.
Unfortunately, the 10-K release was not coupled with the conference call, as it should have been. Mr. Lee has always hit his marks, and designed solid business strategies. So, I expect the conference call to quell today's concerns, and represent a buying opportunity -- just like the knee jerk 10-K reaction -- for those who know the company's history.
Bonebreaker and Strindberg,
Yes, update on timing would be nice.
One thing I'm unclear on: does SIAF intend to apply for bulletin board status or AMEX or non-bb NASDAQ. Would SIAF meet i=the listing requirements for the later? 2012?
Is it the later that is prerequisite to dual listing in Stockholm?
Traderfan,
Totally agree with your post. Much will depend on how the company is able to present prospects on the call, wrt the Form-10 filing. Since the refiling presumably has been made, should be pretty green lighted.
The new fish farm is almost as important as the dairy news, particularly if it is a reliable harbinger. Also, extrapolating the HU planted acreage, earnings will still be very good in 2011, probably equal to past projections.
The land purchase is a huge number. So I will be curious what the proposed uses are. I guess cattle and flowers. Dedicating 500 acres to flowers can produce really big earnings numbers starting in 2013. That leaves a whole lot of land, valuable land that can be used as collateral. I am hopeful that SIAF will use sensible debt to fund rapid expansion.
What I think will be stressed on the call is that SIAF is concentrating on the higher growth, less competitive, more scalable businesses.
More importantly I hope that they can drive home the point that their earnings growth -- not just earnings alone -- is sustainable by the very business models. The flower revenues grow 5 fold in the second year of harvest and double again in the third -- with no new capital or effort. Likewise, without any new fish farms, each farms revenues from fish sales kicks in 6 months after construction, and each year increases exponentially in two ways: one, SIF's equity percentage is raised, and two, the farms capacities are intended to be expanded. Likewise, the cattle model is built on franchising, such that once initial infrastructure is in place, revenues again can scale exponentially.
Surprised that volume isn't higher and trading more volatile today.
The company revealed three cornerstone deals. Taken together, they show a company with very ambitious plans, confident of its core businesses. Clearly, they plan to become a much, much bigger company.
They also provided the current metrics of the flower business that show SIAF can make previous 2011 guidance without the dairy business. That's huge, imo, because while giving up their 2010 largest earnings contributor in order to catapult 2012+ revenues, they won't sacrifice 2011 earnings.
So, they've traded the non-franchise business model division they saw as slowest growing and picked up $52M in land, and announced a new fish farm. They've clarified direction, funneling efforts into the fastest growing, most scalable businesses.
Curious how the land was purchased, because since it can be used as collateral, the balance sheet may improve dramatically. It was already very good, with the exception of cash. That may have changed. In addition, because rebates and grants may have been, or may be used in the future, we've been told that net tangible assets will jump.
Therefore, the company will have even more flexibility to grow.
As an example, and just speculating, were the company to use one 500 acre tract of land for the flower business, they could quadruple that business in five years, adding $1.00 per share to net earnings at plant maturity.
Flower Business = $.28 - $.37 per diluted share in 2011
From the 10-K:
"Out of HST’s land holding, 187 acres were planted with HU Plants from late 2007 to current day consisting of 47 acres of 3 years old and 88 acres of 2 years old plants with the balance in new and year 1 old plants."
This means that in 2011 135 U.S. acres or about 810 Chineses acres will be fully mature in 2011, and 55 acres will produce between 10% and 50% of full maturity.
At $25,0000 net profit per acre, 2011 flower earnings will be $.37 per fully diluted share from this business alone. Not sure if the $25,000 figure is for SIAF's 75% interest in the venture. If not, in the worst case, weather permitting, SIAF will net $.28 in 2011 from this business alone.
That is why they said strong growth in the second half. 2012 will automatically show good growth too as the 55 acres all become 100% mature.
Looks like new acreage will be planted on an on-going basis in 2011, assuring continued exponential growth in 2013 and beyond.
The proven and apparent sustainable growth of their businesses is what makes SAIF particularly attractive. The models are designed to grow automatically, or contractually. Flowers produce more as they mature. Another major case in point is the increasing equity interest in fish sales, on top of number of expandable farms built.
I'll let Strindberg answer, as he knows a lot more than me about dual listing in Stockholm.
But as I recall, he's said that it's pretty simple and would take only about 3 months after any kind of NASDAQ listing.
We're 5 months into the Form-10 process now. When talking to Chad, learned that the SEC had 24 comments. These are now answered and will be submitted before Thursday, as I understand it. There may be another round of comments and answers, but presumably much smaller. So, my uneducated guess is that we have another 1 - 4 months before approval.
Just the company's public acknowledging of a dual listing road map would do wonders for the share price, imo. I believe this is the path, but don't think they'd say so until NASDAQ listing is secure.
Talk about forward looking statement, while in the Form-10 review. Target price will not, and should not, be mentioned.
But what can be mentioned are some of the factors one would reasonably assume lead to higher price. Generally, these are operational goals that lead to financial targets, and shareholder friendly initiatives like dividend, uplisting, and dual listing.
They can give some indications of their thoughts regarding a dual listin in time, but think its probably unwise to p=be more than vague until they have secured a NASDAQ listing.
Ultimately, they may spin out subsidiaries to foreign exchanges, also dramatically increasing valuation. But they shouldn't bother until they reach critical mass.
I spoke briefly to Chad right after the 10-K release. To his knowledge and opinion, nothing has changed regarding 2011 guidance. He did say that the company is following conservative legal advise wrt the forward looking statements and the Form-10 review.
They are making sure that the SEC has all they need, without going public beforehand with anything that might jeopardize the application.
Obviously, these SEC procedures take a while. But when the uplisting does finally happen, consideration of a dual listing is HUGE for the stock price.
I think it's the number one key for a higher multiple. So, to hear that it appears probable later this year is great news.
SIAF has always seems strategically sound.
Looks to me now that they are matching strategic operational growth with smart shareholder visibility moves. The dividend was the first major move in that realm. Form-10 and the NASDAQ kisting is number 2. And a dual listing would be number 3, imo.
As I recall, the capital investment for the HU flower business is $20,000 per acre. If this were funded with low interest loans, or even partially funded, HU could ramp pretty quickly.
We'll learn a lot more Thursday, even if we don't learn everything, due to the filings.
I am very encouraged by the full 10-K revelations.
I saw the dairy sale first, and if that were in a vacuum, there might be some concern. But with the new fish contract and the expansion of land, I think the prospects for the company are even better than before, a lot better.
I think the large shareholders already knew some of the intermediate term plans. Now that they are starting to be realized, I think the stock price should reflect. In fact, this week may be the last time to buy under $1.50, particularly judging by the Swedes apparently buying every dip, and the conference call detailing these exciting events coming on Thursday.
We know that the balance sheet looked great -- much improved in Q4 -- and that these transactions will provide an immediate additional boost, probably significant.
We also know that the company is now concentrating on the highest profit margin businesses, and that it has put into place the steps to become a much bigger company.
Looks like SIAF paid, or will pay, $20,000 per American acre. Also, appears that the land will be used for high margin businesses, that will be aided by grants and rebates, thereby boosting equity immediately (as per ccsykes). And capex for the businesses can be funded through low interest loans, with the land use rights as collateral.
For instance, if one of the 500 acre plots were dedicated to expanding the HU flower business, the potential net profit for that land, as previously reported at $25,000 per Chinese MU acre -- about $150,000 per U.S. acre -- would ramp to $75M per year after three years. That is about three times the current capacity. And one helluva return on investment.
What is clear is that the company plans to become a much bigger company.
They traded the division with the slowest growth for a whole lot of cash, and got a whole, whole, whole lot of land for faster growing businesses.
Guess we'll see Thursday what those plans are, assuming the Form-10 resubmission permits.
The 10-K also reveals a lot about how quickly the flower business earnings will grow: well over 100% in 2011.
Emilez,
I have had that thought as well. And I think it's quite possible that they will build some farms on their own. This would be particularly smart, imo, if the 100% company owned farms (from the get go) were geographically strategic and used as demonstration models for different provinces, and/or different fish species or climates, proving the concept over a variety of conditions.
However, the construction of their own farms would become an accounting expense -- albeit much smaller -- rather than the revenues they derive from partners. That's the real beauty of their model. The partners are basically financing SIAF's fish business. The partner provides all the development capital, and instead of debt, SIAF gets income!! This is a beautiful thing.
From the partners perspective, they get a preferred return on their investment from fish sales rather than debt repayment. I presume that SIAF's increased equity stakes in fish sales over time occur as linked to the partners return of and on investment.
snow,
Yes, this is my thought also. They are investing in the higher profit margin, more scalable business ventures. The dairy business is the only one that was not on some franchise kind of model. It was the first, and had reached some critical mass, but it could not expand nearly as fast, nor as profitably as the others.
New Fish Farm
Snow,
As far as I'm concerned, the true and great potential for this company lies in the fish farms. Look at the business model and the numbers. There is VAST potential here, as I'll get into. So, new and further validation by a new contract is great news. Because when these farms catch on, the business model affords very rapid deployment at very, very high profits.
Yes, the ultimate capacity for the new farm is scheduled for five years. But this is the first we've heard of that kind of expandability for each farm. If one farm is defined as 250 tons capacity, rather than having to make 7 new sales to construct new farms, they will simply embark on expanding. No new sale is needed.
Another way to think of this is if the goal is to have 200 farms in five years, they have to "sell" only 25-50 -- on the face of it, quite a modest goal. In fact, they are on record targeting 8 for the second year. Now, that 8 could wind up as 64.
I think this is huge. The gross profit for construction only of one farm only in 2010 was over $3M. This does not include fish sales, the reason to build the things. So, now, if this expandability model is followed, the construction revenues for each sale will be 4 - 8 times that amount. Now, gross profit for construction only on only 25-50 sales -- resulting in 200 "farm units" -- will be $600M over five years. Profits from fish sales will be as large.
Couple other fish farm tibits from the 10-K. The company does not see any competition for its RAS technology. It is confident that the technology is secure, and they've reduced the costs 50% for much of the original Australlian components such that the fish are not only grown faster and to higher quality standards, but also more cost effectively.
Great News: New Fish Farm
Phase 1 in 6 months; ultimate capacity 2,000 tons, 8 times normal size, 4 times current farm (whose capacity was doubled from original plans)
Enping City Bi Tao A Power Prawn Culture Development Co., Ltd
On February 11, 2011, Wei Da Xing and Capital Award Inc entered into a joint venture agreement, in accordance with the laws of Sino Foreign Joint Venture Enterprises of the People’s Republic of China and other relevant regulations to incorporate a sino foreign joint venture company at No. 1-5, 1st Floor, Jiangzhou Shui Zha Office Building, No 19, Jiang Jun road Jiangzhou, Juntang Town, Enping City, Guangdong Province of the People’s Republic of China, to be tentatively named as Enping City Bi Tao A Power Prawn Culture Development Co., Ltd (“SFJVC”).
10
The Parties' purpose in establishing the SFJVC is to develop a prawn farm, that will produce high standard of quality fresh prawns and products that will have the competitive edge to develop sustained markets internationally, through the application of modern aquaculture technology and related management systems to gain economic benefit to the Parties as well as to generate social benefits to the communities as a whole.
The production capacity will be 2,000 tons of quality fish and prawns per year.
WOW
In February 2011, we as Vendor sold our 78% interest in ZhongXing to Ximin SUN (“Purchaser”) on the following terms:
1.
Total purchase price was RMB204,600,000.00 (equivalent to US $31,000,000.00) which is equivalent to 78% of the net assets of ZhongXing plus a surplus sum of US $4,937,000.00 as reflected in the ZhongXing’s Management Accounts upon the terms hereinafter provided
Just reading now, but this is a blockbuster, near as I can tell. The cited payment terms are unclear to me.
Not clear to me what this means for revenues, etc., and is a little odd that we probably won't have a full explanation until 4/21.
I think they can generate $50M earnings in 2 years.
Previous guidance was $.49 fully diluted as I recall, or almost $30M for this year, now 30% complete. So, one more year of 65% bottom line growth from a set of synergistic businesses that should benefit from economies of scale, food inflation, and currency exchange, on top of well conceived growth plans.
Their press releases have both Lee Solomon and Solomon Lee. Later sounds more Chinese; either way Solomon means wise.
For shareholders real profit, there's potentially seriously more benefit in multiple expansion than earnings growth. Again, a dual listing would be the single biggest boon in this direction.
Would love to see a 10 multiple on the $50M, still low by international standards, but well, well north of here.
I have great confidence in operational performance -- more so, once validated by new fish farm contract(s). Timely reporting, successful uplisting, no dilution, continued increasing dividends, road shows, quarterly conference calls, interval presss of new events, meeting timelines for new businesses and business expansion, maybe even a share buy back would each help us get there.
Yes, bigfish is a farce.
The innuendos they promulgate could be made about any company and any acquisition, Chinese or US.
TIAN was too good a deal; Shengyuan was either too good or too bad. They argue NEP either paid too much or not enough, should or shouldn't have used cash, and claim any alternative is suspect. Shoddy transparent hatchet job.
It ain't research.
China sells land leases. Big deal.
People should also look at the balance sheet comparison of 12/31 to 9/31.
There, the quarter looked great.
I get a fully diluted NAV of $1.65: $101M / 61.2M shares, $1.85 basic.
The more I look at the report the better it looks. Comparing to the Q3 release, revenues and gross margins were up handily quarter over quarter in every division except the HU flowers, where we knew weather limited production.
More importantly, compare the balance sheets after Q4 vs. after Q3:
cash up 53% from $2.26M to $3.89M
current assets up 8% from 40.75M to $43.8M
current liabilities down 50% from $5.8M to 2.9M
working capital up 17% from $35M to $41M
total assets up 10% from $97.6M to $107.8M
total sh equity up 15% from $88.1M to $101M
These are pretty phenomenal figures for one quarter. Total shareholder rose $12M for the fourth quarter alone. I suspect this has something to do with government grants.
Total equity is $1.87 per share.
No doubt they could and should have done a better job with this release. First, they should have been explicit about the GAAP reconciliation. Also, they could have released after the close to give investors time to consider.
I'll give them a pass on the rest -- what they didn't include -- as I'm sure it's related to not having the Form-10 refiled (tho they did signal that was the reason to schedule for 4/15).
So, let's see what they talk about 4/21. We were promised exciting news, and told that the business plan is moving forward and will move forward at a brisk pace in 2011. They've always come through before.
So, I think we'll hear exciting news, some of which certainly relates to the new capex. They've always made good returns in the past; so anxious to hear what operation acceleration this targets, either for an existing or new business line.
Further, I expect 2011 guidance to equal or exceed that already given ($.49), and to hear that their business will be less seasonal in 2012, when the 2011 flower yields will be sufficient to hold some over, and fish farm construction will be on-going.
This probably relates to the positive, exciting news Mr. Lee referenced, but could not explain (least until 4/21).
Looks like they made guidance to me.
They may delay, if the Form-10 revision isn't posted in time, because their attorneys' interpretation may be that forward looking statements, or material business changes should not be announced until the Form-10 is filed.
This is my guess as to why we have not heard a time and phone number.
I have no doubt that the news will be exciting, but it may not be tomorrow.
Personally, I think if they haven't finished the Form-10 refiling, they should release the financials, and have a limited conference call, saying that they will have further announcements and answer all questions when they do file the Form-10; say, in another week or so.
OT
Steve,
I don't have PM capability either.
Tough to be in this space at this time. Basically, most every honest Chicom is dirt cheap, and will rise dramatically in the coming years.
But companies will have to come out and strongly state that they will take actions over the coming months to prove themselves to shareholders. And they will have to follow through, whether it be dividends, buy backs, Big 3 accountants, dual listing, etc.
The percentage of suspect CGS companies is far higher than anyone expected. However, all are trading at absurd levels.
People keep talking about p/e ratios of 10 and 20. That won't happen for a long time -- doesn't even need to -- until each healthy, clean company separates itself without ambiguity.
This means top rated accounting and audit firms, Sarbanes-Oxley compliance, share buy back authorizations, insider purchases, DIVIDENDS, reconciliation to Chinese tax accounting, concerted association public relations, web site videos of operations, more road shows, welcoming SEC and other governmental scrutiny, some equivalent good housekeeping seal of approval.
The Muddy Waters of the world will be replaced by the equivalent in the long camp, once the wheat is demonstrably separated from the chaff, or the risk reward profile becomes compelling, which my be very soon.
Thanks again for your posts, Strindberg.
Interesting that the author ranks the shares as a buy in November. But he characterizes then as speculative and that all the business models are not yet sustainable.
Since November, he's seen the progress of the cattle and fish businesses, and buys the shares.
I agree that the sustainability of the fish business growth is critical to all our pps hopes, so once the target of 4 new farms is contracted, I'll mark that one in the milestone checked category, pretty much as everything SIAF has guided, time allowing.
I am hoping for accelerated partnership with regional governments, as the proliferation of quality food is in everyone's best interest.
We often talk about p/e ratios, but balance sheet is equally important. Last quarter SIAF's book value increased $14M while it earned $7M.
Future earnings can be seen as a return on assets. I believe that assets are rising faster than income contribution because of government grants.
At some point, I hope they add low interest loans to the financial structure, because they clearly have multiple projects with high roi profiles requiring capex. New 100% owned fish farms could be one; likewise, accelerated planting of HU flowers, and/or leasing more land; likewise, expedited growth of dairy businesses, allowing furthering of retail brand and commencing the marketing and distribution business.
snow,
I agree 100% with those sentiments.
Very much agree with your sentiments, though I simply don't think a PEG ratio valuation will ever apply to an ag company.
But before we ever get a p/e of 20 -- if ever -- we have a lot of work to do to get to a p/e of 6, 8, 10. Looks like you'll be a SIAF millionaire in late 2011 with a forward p/e of about 9;not bad, yes?
That would be a 6 bagger from here, so talk of 20 baggers plus, is just premature, imo, and over optimistic -- unless -- SIAF not only dual lists, but also transforms itself in some way beyond currently anticipated business operation growth and vertical integrations.
It is possible that SIAF will make a giant leap forward, at some point. But in 2011 and probably 2012, we are laying the groundwork. Concurrent with operations growth and attendant financial rewards approaching 100% earnings growth, SIAF must separate itself from the stigma of its sector.
Clearly, the Form-10 approval is first.
The dividend was a great step. There will be a press release every year that the dividend was doubled +/-, because it is essentially indexed to income. Very smart move. Raising the target percentage a small amount is not a bad idea either, though I'd prefer to see other shareholder friendly measures, including a share buyback. This would be particularly attractive if coupled with low interest loans to fund cap ex and business expansion. This would gear the company to greater leverage and even faster growth, but could be done quite sensibly I think -- especially and critically -- after the 2011 target of 4 new fish farms built is contracted. Then, down the line, any potential equity raise at higher prices might dilute only as much as the share buyback was accretive to earnings.
I agree that the dual listing would be the single greatest boon to a more realistic valuation. And from what Strindberg says, it would be pretty easy. I encourage everyone to lobby the company for the dual listing.
Strindberg,
Thsnk you for posting this.
It's interesting to speculate how the points raised about the five year plan may impact the "exciting events" to be discussed in the upcoming call.
Expediting growth in any of their businesses or expanding land leases, using either grants, government loans, or subsidies could be an heretofore unaccounted for catalyst to even greater sustainable income.
Dual listing will put SIAF in front of a second audience of investors, one that has already proven to see its value. The Swedish exchangeaffords larger multiples in general, and most importantly does not carry the guilt by association valuation currently ascribed to the US listed Chinese microcaps.
Apparently Swedes and Swedish funds would have only SIAF as an investment choice for a Chinese growth story company -- and we all agree, a compelling one -- on their home exchange. If they buy SIAF up, NASDAQ price gets carried along, That simple.
Of course, there are other moves that will help p/e multiple, including continued operational and financial excellence; bullet proof accounting; uplisting; rising dividend; etc. But I think a dual listing, especially if the stain on the sector has passed wold be the single greatest boon to share price.
When I asked where people thought SIAF would be, or could be in two years, the answers were 10 - 13.
If SIAF were to appreciate 50% per year for 5 years, it would be 10.65. Gotta say any investor would be delighted with 50% per year, yet people on this board -- myself included -- think that SIAF can, and probably will do much better.
Failing some monumental business leap, the only rational way to get to the out sized return expectations is multiple expansion on top of 60% - 120% yearly earnings growth.
A dual listing is the single best way to promote multiple expansion, imo. I encourage everyone to endorse the idea, and make their thoughts known to SIAF management.
Of course, for now, they have to wade through the Form-10 process.
Strindberg,
What is the averge p/e of all companies on the Swedish exchange, and of all non-Swedish companies, and more specifically Asian?
Thanks!
The listing is more important than the reverse split, if needed, imo. Of course, not needing one is preferable.
A dual listing is even more helpful.
I think a share price of 10 in 2 years is a reasonable goal, based on earning $.60 in 2011, $1.00 - $1.20 in 2012, and 2013 guidance of $1.80. Number one catalyst to these earnings is signing fish farm contracts.
In two years there may still be a 20% discount to normal value metrics because of the Chinese microcap association, but nothing like now. I expect the RMB will appreciate 10% vs. the dollar by then, to offset.
A dual listing alone would double the current p/e, imo.
I'd love some really big news on April 15th, but I think something really new and material would have been announced separately. Nonetheless, advanced progress for existing businesses would qualify as exciting. I expect that what was meant was a lot of progress in all business fronts; for example:
New government grants,
Enhanced yields and increased planted acreage in the flower business, post rains,
Promising on-going negotiations with regional governments to partner on multiple fish farms,
Dramatic increase in number of milking cows, and in sales of retail dairy products,
Preliminary set up for distribution and marketing branch complete,
Plans to add more products to retail brand,
Etc.