China's Agriculture

As we all know, our basic needs are food, clean water and air. Recently, i just did some research on China's agricultural section and found a few interesting companies which made up onto my list on-watch. I even bought one of them a week ago.

China, a nation with a population over 1.3 billion (that's about 20% of the world's population) has only 7% of the world's cultivation area feed all of them. No wonder, the Chinese government is so desperate working with WTO to subsizdize improvement and equipments for farmers to increase agricultural output. China has also assigned most of it's land as agricultural land and those who use these land for other purposes (eg. residential, commercial or industrial) will get severe punishment. And recently, the cry for a higher wage is still clear in your mind from those examples of work-related suicides that prompted Foxconn (who manufacture most of the mobile phones on earth) to increase their minimal wages by at least 30%. These are all examples of an inflation in salary which would eventually lead to an improvement in living standard for those 1.3 billion Chinese. With more money, we tend to enjoy life better, better food, better shelter and better transportation and eduction. Therefore, the demand for food will grow at an exponential rate, from rice, soybean and coffee to companies that manufacturers of fertilizers and tractors for those farmers will benefit.

There is a plenty of room for growth in the agricultural sector, for example, according to the USDA statistics, South Korea consumes seven times more milk than China per capita, Taiwan eleven times and Japan sixteen times.

Chaoda Modern Agriculture (Holdings) Ltd.
HKG : 0682, H-shares
Chaoda Modern Agriculture (Holdings) Limited is an investment holding company. The Company, along with its subsidiaries, is engaged in growing and selling of crops, and breeding and selling of livestock. The Company’s operations are primarily in the People’s Republic of China. Chaoda Modern Agriculture (Holdings) Limited is a fruit and vegetable producer. The Company supplies frozen fruits and vegetables to retailers, food processors and the food service industry in Europe, North America, the Middle East and Japan. It also breeds and sells livestock, including Boer goats, Dorper sheep and dairy cattle. The Company grows a wide variety of rice, which is marketed under the Chaoda brand. The Company mainly grows white, brown, black and Thai rice.
The best thing about this company is that it has a net profit margin of above 40%, that's a big fat margin for any kind of businesses. This company with a market capital of RMB 20 billion is sitting on a cash pile of RMB 1.1 billion. Also, the company's stock is currently trading at a P/E of 4.75 which is cheap given the company's potential growth and strong cash flow.

A summary of the company's consistent growth over a period of 9 years.

5 year financial summary

The company's stock price since 2001. The company is paying out regular dividends and have a consistent growth in it's stock's value. It is currently trading around HKD 6.80 per share which is still around 40% down from it's all time high of HKD 11.90 per share in 2008. It is a good bargain indeed.

Other companies to watch are listed as below:

China BlueChemical Ltd.
HKG 3983, H-shares

China BlueChemical Ltd. is engaged in the manufacture and sale of phosphate fertilizers. The Company operates in four segments: urea, phosphorus fertiliser, methanol and others. The urea segment is engaged in the manufacture and sale of urea. The phosphorus fertiliser segment is engaged in the manufacture and sale of mono-ammonium phosphate (MAP) and di-ammonium phosphate (DAP) fertilizer. The methanol segment is engaged in the manufacture and sale of methanol. The others segment consists of segments engaged in port operation, the provision of transportation services and the manufacture and sale of woven plastic bags and BB fertilizer. On February 28, 2009, the Company acquired 83.17% and 100% interest of Hubei Dayukou Chemical Co., Ltd. (DYK Chemical) and ZHJ Mining Company Limited (ZHJ Mining) respectively.

First Tractor Co., Ltd
HKG: 0038, H-shares
First Tractor Company Limited is engaged in production and sale of agricultural tractors. The Company operates in four segments: agricultural machinery, construction machinery, financial operations, and diesel engines and fuel jets. The agricultural machinery segment is engaged in the manufacture and sale of agricultural machinery, including tractors, harvesters, and related parts and components. The construction machinery segment is engaged in the manufacture and sale of construction and road machinery. The financial operations segment is engaged in the provision of loans, bills discounting and deposit-taking services. The related parts and components segment is engaged in the manufacture and sale of diesel engines and fuel injection pumps. Its subsidiaries include Brilliance China Machinery Holdings Limited, Yituo (Luoang) Construction Machinery Co., Ltd., Yituo (Luoyang) Building Machinery Co., Ltd. and Luoyang Changlun Agricultural Machinery Company Limited.

China Food Ltd.
HKG : 0506, H-shares
China Foods Limited is an investment holding company. The Company along with its subsidiaries is engaged in production, sale and trading of grape wine and other wine products; processing, bottling and distribution of sparkling beverages and distribution of still beverages; distribution of retail packaged cooking oil and other consumer food products, and production and distribution of chocolate and other related products. The Company operates in five business segments: wines segment, beverages segment, kitchen foods segment, confectionery segment, and corporate and others segment. On January 9, 2009, a 65% equity interest owned subsidiary of the Company, COFCO Coca-Cola Beverages Limited (CBL) acquired 40% interest in Beijing Coca-cola Beverage Co. Ltd (Beijing Bottler) from Coca-Cola China Industries Limited.


*Disclaimer: The author do own shares of Chaoda Modern Agriculture Ltd. but does not own shares of other companies mentioned in this article. The author will not be responsible for any damages or losses.