Sino Agro Food Inc (fka SIAF)

[Ecuador]

SIAF peers trading at PE 40X

Some really good DD according to my opinion:

Found a dutch company that provides RAS equipment, and has been providing this to chinese producers:

http://www.aquaoptima.com/images/stories/pdf/ref%20list%20ras.pdf
http://www.aquaoptima.com/

The largest enterprises seems to be in roughly the same size as SIAF. However they do not share the ecological vertical integration strategy, that SIAF seems to be pursuing. A few of the companies and other aquaculture companies are listed in Shengzen and Shanghai:

SHE:002086
SHA:600467
SHE:002447
SHE:002069
SHA:600257
Google finance is best for info.

A lot on inferences regarding competition analysis can be drawn from this. I havent found any RAS producer making sleepy cod though. Found RAS producing shrimps, but not prawns. However i suspect the market is relatively identical. A lot of the companies are doing RAS on sea gurkins and jellyfish. Not as many involved in fish.

MORE IMPORTANTLY:
The crazy thing is valuation. Average P/E for these peers are 45 (!). Being optimistic and imagining SIAF will reach 2 USD in EPS 2013, the valuation implies a share price of 90 USD, which seems like a complete lunacy. Thats a lot of very wealthy SIAF shareholders if that scenario will come in play.

I wonder how it is possible with valuations like that on mainland exchanges.... Not even an economy growth rate of 10% can justify such high multiples according to my experiences of PE multiples. I tink it has to do with capital flow restrictions, due to china's regulated capital markets. Would be nice to find a slightly more academical explanation of the phenomena.


However given the structure of Chinese Capital Markets, i doubt a Sino Foreign Joint Venture can list on the Mainland and enjoy those crazy multiples. However an even remote possibility to achieve that would be incredibly interesting to pursue. Another option could be to sell the company to a chinese Private Equity fund for PE 25-30, which in turn can list the company on the mainland exchange and enjoy the mutliple expansion. That would still be an incredible deal with a share price of 40 to 50 USD. I think a private equity exit would be the most appropiate, in order for the company to enjoy the high mainland valuations.

Worst case: Say that SIAF only reaches 1 USD in EPS and receives a low IPO/private equity valuation of 20x. Thats still a whopping 35x return from today's levels!! This is really a very neutral/pessimistic forecast, given that SIAF's business model at least works adequately. (Analyzing the business model and reaching the conclusion that it is very good is a completely different story).


Anyone knows of any good peers to SIAF on HKEX? Would be interesting to see multiples there, however i suspect they are a lot lower, around 10-15.

In summary, hearing more about the spinoff plan is crucial. Current valuation is really pure arbitrage in my opinion.

Would be happy to have a discussion around my assumptions. Ofcourse the same conclusion can be drawn for all decent chinese companies listed in the US that experience these valuations.