Review: China Farm
What a debut! IPO at $0.345, opened at $1 on day 1!
Sincerely congradulate those who successfuly subscribed to it. But "BOO!" to those who sold it on day 1. This counter is meant to be held on to. For the long term.
So where do we go from here? Having only being vested at $0.995, I can tell you I'm bullish about this counter.
With such a surge from its IPO, there is bound to be a short term weakness. Expect to see some fall thru past CNY, in-view of the possible market correction around CNY. After the company announces its FY06 results, expect the price to start its upward trend.
So why don't I buy later? Well, first of all, I don't like to time the market. Secondly, who says there will be a correction? I expect China Farm to live up to its FY06 profit & eps growth, and maybe the market sees eye to eye with me. With the Chinese "farms" modernising, i espect China Farm to continue its growth.
Even with a high P/E ratio (relative to 8x P/E at $0.73), there is no saying that China Farm wouldn't be trading at 20x P/E in the near future.
Addition on 10 Feb 07:
With regards to the company's competitive edge, they have recently filed a patent for their latest plough machine. This shows the company's edge over other companies in the industry. In addition, with several awards for branding and satisfaction to China Farm's name (can be found on the website), it is clear that the company's managers know what they are doing when it comes to expanding China Farm.
With regards to the possibility of the company not being able to keep cost down, i'm consoled by the fact that they have won several awards for "financial performance" and "quality trustworthy enterprise". And on a more important note, the company has successfully maintained a good growth, and able to raise their sales and keeping cost in control in 9M06.
That assures me that FY06 will not produce any negative surprise, but a positive surprise is more likely.
In a short time to come, $1.00 would seem too cheap, and you will be wondering why oh why didn't you invest in China Farm then. (well, i hope so, nothing is certain in shares.)
Target of $2.00 for China Farm, in 1 year.
6 comments:
true...70% of china farms still use old tools. Thus the new implementations to push china argribusiness to machanise will be increased from 15% to 45%. There is lots of potential for this one
Hi Pehon,
I was not surprised to see China Farm surging to about 3x its IPO offer price as the market sentiment currently is very bullish. I guess I will sound like a wet blanket when I list these factors for consideration:-
1) I agree China Farms are modernizing and more sophisticated equipment will be used in future years, but what makes China Farm stand out amongst the rest of its competitors in terms of product offerings ? Does it have a patent for new technology, competitive pricing or a distinct product edge ?
2) Unless it has a distinctive competitive advantage, it should usually not trade at a premium to other farm equipment producers and distributors. It will be more prudent to assess the average P/E of the industry and benchmark China Farm's EPS to that.
3) Another point is earnings growth. Projected rise in revenues are always accompanied by projected rise in Cost of Goods Sold. Will China Farm be able to control its costs ? Remember that farm equipment is capital intensive and these machines all have a fixed cost and they need to be depreciated which hits the P&L. Any possibility of stock obsolescence will quickly hit the P&L as stocks written off, so it is important that China Farm is able to maintain a high inventory turnover with respect to other players.
With these considerations, I am inclined to monitor the first quarter results for China Farm first for 1Q 2007 before making any moves, and to read their MD&A as well.
I do not have any target price for this company.
http://www.chinafarmequipment.com/milestones.html
refer you to their website. Yes, they do have patent filed for their latest plough machine.
Competitive edge that i can see is the company being awarded several awards (shows their branding efforts starting to pay off), and their combine harvester was "to the satisfaction of farmers of the whole province for 2005", on top of that, their products are one of the few that are listed in a government brochure (ie subsidy provided).
In terms of keeping cost down, their 1h06 results show they are able to keep cost down with their expansion, and on top of that, their management have recieved several awards last year for their "financial performance" and "tax payment management" and "quality trustworthy enterprise". This clearly shows the company's ability.
on top of that, the company has seen reduced inventory turnover time over the last 3 years (from prospectus).
thats my take regarding your comments.
no hard feelings. keep it coming. This way we will learn more from each other.
hi f16eater
when is China Farm expected to announce its results? any idea?
thanks and regards,
John Jay Jinglebells
no idea. but keep yourself updated at chinafarmequipment.com.
hi hi,
China farm went up to a hi of 1.04, after your purchase at 0.995. Following the 7% rule, u shd have cut loss at 0.965. wat if china farm went down even lower? do u intend to cut loss?
Jus wondering. :)
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