It's the day after the Mid-Autumn Festival, which is celebrated at night to make the most of the full moon. It's family time, the end of summer, and the harvest festival.
Markets are closed in China, Hong Kong, Taiwan and South Korea as a result, with Macau also celebrating the event. It is also "Malaysia Day" and a public holiday in that country.
In keeping with the harvest theme, I took a look at some of China's largest food-processing stocks yesterday. I thought that today I would run through a few of China's biggest farming companies.
China is in a desperate struggle to find enough food for its 1.4 billion people. Conglomerates have been buying up farming and food-production companies in Australia and New Zealand as a result, sometimes controversially. Shanghai Pengxin SH:600490 has been blocked twice by the Australian treasurer on national interest grounds from buying S. Kidman & Co., which has a herd of 185,000 cows, making it one of Australia's largest cattle companies. Persistent Pengxin is now reportedly looking at a joint venture with an Australian company as a solution.
Like the food processors, these farming companies sell their goods to the domestic market, so they are pure-play China stocks. Several are also listed outside China, meaning they are accessible to "regular" investors.
The largest is Guangdong Wenshi Food Group SZ:300498, which attributes most of its recent profitability from strong hog sales. Only public since last November, it is a giant at $23.9 billion in market capitalization.
Compare that to the second-biggest farm stock, Bluestar Adisseo SH:600299, "just" $5.7 billion in size. It makes additives for animal feed, one of the top three such producers in the world. Adisseo has made itself accessible to international investors with an English-language Web page, and is interesting as a tech-focused farm-related company.
The two stocks are particularly cheap, with Wenshi trading at 13.6x earnings and Bluestar at only 7.6x. Wenshi is one of a tiny handful of farming companies that pays a dividend, at a healthy yield of 5.5%.
Muyuan Foodstuff SZ:002714 is the fourth-largest farm stock and also relatively cheap, at 13.0x earnings. It's another pork producer. Among the largest companies, only No. 3 Beijing Dabeinong Technology Group SZ:002385, at 34.3x earnings, looks relatively expensive. It produces seeds.
Screening for income after tax, Shandong Denghai Seeds SZ:002041, which makes seeds for corn, wheat and flowers, is the leader, at 34.9%, and bar its erratic leap and crash last year has seen steady stock-price appreciation. U.S.-listed Pingtan Marine Enterprise (PME) is a close second on profit margin at 32.2%.
Pingtan is an industrial-level fishing company, with 110 trawlers, four longline ships, two squid-jigging ships and two drifters operating in waters around India and Indonesia. It then ships all its catch back to China. Its shares have never recovered since an 85% crash in mid-2013.
They are two of the eight companies with profit margins of more than 20%, the others being Chang Run China Investments Holdings FRA: C9RG (29.0%), China Greenfresh Group HK:6183 (28.6%), Tianshui Zhongxing Bio-technology SZ:002772 (24.0%), Yuan Longping High-tech Agriculture SZ:000998 (23.1%), Sino Agro Food (SIAF) (21.4%), and China Zhongdi Dairy Holdings, also listed in Hong Kong under the ticker HK:1492.
Watch out for German-listed flower producer Chang Run China, which runs plantations in Jiangxi and Fujian province, near Taiwan, and Yunnan next to the Myanmar border. The company, which sells to retail customers via the Web site www.cwzflower.com, restructured last September and missed filing its 2015 annual report by the June 30 deadline. It blamed a delay in its audit due to collateral issues on an advance it made to one of its executives. Its shares showed massive volatility in late 2015 but after a 38% rise at the start of this year seem to have stabilized.
China Greenfresh, via its Hong Kong listing, is easily accessible to investors, as are Pingtan Marine, Sino Agro Food, China Zhongdi Dairy and Chang Run China. Greenfresh grows mushrooms, especially king-trumpet and button fungi, and makes canned food. Revenues rose dramatically in the first half of this year, up 50%, although profitability only improved 4.7%. Tianshui Zhongxing Bio-technology is also a producer of mushrooms, king oyster and enoki mushrooms in particular.
Yuan Longping High-tech Agriculture is another seed producer, shipping both within China and overseas. The Hunan Province-based company has quite an amusing Web site explaining its philosophy to "Create infinity, benefit mankind." Like many of these companies, its shares suffered hugely during the dramatic selloff in Chinese markets in mid-2015, when it looked like the country might have an economic crash landing. As August's economic data showed, that's been averted, as I outlined on Tuesday.
Sino Agro Food raises cattle, produces fertilizer, and catches fish. Its shares have been on a steady slide since May 2015, down 62% in the last 12 months; at $4.75 it is bumping around what looks like resistance level for the stock.
China Zhongdi Dairy Holdings raises cattle and produces milk. Revenue doubled in the first half of the year, compared with the same period in 2015, although like China Greenfresh profitability didn't improve much, up 3.8%. It has been a horrible disappointment for investors, slumping consistently since its December IPO. It is down 39% since going public.
The high-profitability companies are well ahead of the average net margin for the industry, which thanks to some major losses among minor companies is barely in the black at 1.8%. Many of these companies also have low levels of debt -- a measure worth considering given the concern over bad loans in China. Should the "Big Four" banks begin to call in borrowing, highly leveraged companies could find themselves in trouble.
However, much as in Japan, there's a tradition of trickling debt out to troubled companies and sustaining bad bets rather than forcing repayment. Muyuan Foodstuff, with a debt-to-equity ratio of 80.2%, and Yuan Longping, at 67.4%, are the exceptions.
