Wednesday, January 20th, 2010
Sino Agro Foods Could Be Quite Appetizing
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Sino Agro Foods, Inc. (PINK:SIAF) may be a risky Pink Sheet stock right now, but this small company could become a big Chinese Ag player down the road.
Sino Agro Foods, Inc. (SIAF) is an agricultural business focused on developing, producing and distributing high-quality agricultural products throughout China. The company’s businesses include fisheries, dairies, and agricultural production of capers and sod.
Rapid industrialization has left China with a diminishing supply of useful land, a scarcity of farm laborers, industrial pollution, and an overuse of chemicals. In response, the government has directed many incentive programs to revitalize and modernize the industry.
Sino Agro Foods is attempting to capitalize on these trends by meeting the demands of China’s rising middle class for gourmet and high-quality food, while also taking advantage of the many government incentive programs that help lower taxes and help the environment.
Expansion Plans Put in Motion
Sino Agro Foods has historically grown through acquisitions and plans to continue this growth path in the future. The company acquired four companies in 2007 and one technology in 2008 related to livestock feed manufacturing.
Through these acquisitions, the company built up a presence in Beijing City, Guangzhou City, and Xiling City. Going forward, the company plans to develop export markets by 2012 in order to further drive growth while keeping a lean overhead.
At the same time, the company plans on continuing to create a marketing network that will bring its produce and products directly from farms to the end consumers’ markets based on a high standard of quality and efficient personal services.
A Look Under the Hood
According to its latest annual report, Sino Agro Foods earned $0.134 per diluted share on revenues of $19 million, for the year ended December 31, 2009. While these results are unaudited, they would suggest a price-earnings multiple of just 9x.
On its balance sheet, the company reported net assets of $66.7 million, which implies a net asset value of $1.26 per share. Given that shares are trading for just $1.71 a piece right now, the stock appears to be undervalued on a fundamental basis.
Assuming the company is able to maintain its growth and eventually up-list to a better exchange, the $1.71 per share price could prove to be a strong value. However, the company remains inherently very risky right now due to the lack of audited financial statements.
The Takeaway…
- Sino Agro Foods is a risky stock to own right now given its lack of audited financial statements and limited reported historical statements.
- Despite this, SIAF is a stock to keep on the radar going forward given its position in China’s growing market and the potential for it to get audited, up-list, and become a strong Chinese Ag player.
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-- Written by David Breen
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