Sino Agro Food Inc (OTCMKTS:SIAF), an investment company focused on protein food, including seafood and cattle, delivered an update regarding its financing and spinoff of its former subsidiary; Tri-way Industries. As a result, the share price increased.
If this is the first time that you are reading about SIAF, then the most significant item to know is that the company is very undervalued, and its book value per share is 11 times its share price as of July 18, 2017. Furthermore, it shows a profit margin of 32.16% and double-digit returns on equity and on assets. That’s not all; SIAF knows that the market undervalues the company and is making moves to boost shareholder value. The spinoff of Tri-way Industries is a clear example.
Sino Agro Food – The divisions
SIAF is a holding company operating in the People’s Republic of China. It acquires stakes in companies with the business objective of “distributing, marketing and selling natural, sustainable protein food and produce, primarily seafood and cattle, to the rapidly growing middle class in China.” Have a look at the sales breakdown reported in the last annual report:
|Division (on Sales of Goods) (in millions)||2015||2016|
|Organic Fertilizer (HSA & SJAP)||164.6||155.2|
|Corporate, Marketing & Trading (SIAF)||37.9||72.4|
|Total Revenues derived on sales of goods||$||336.9||$||332.1|
Also, check the revenues coming from its consulting services:
|Division (on consulting & services) (in millions)||2015||2016|
|CA (Fishery related developments)||$||88.5||$||72.2|
|MEIJI (Cattle farm developments)||0||0|
|SIAF (Other developments)||3.8||0|
|Total Revenues derived on consulting & services||$||92.3||$||72.2|
On top of it, it is relevant to note that SIAF owns “patents, proprietary methods, and other intellectual properties in its areas of expertise.” This know-how delivered from the acquisition of companies is shared between the divisions. It can also be sold, licensed, or used for consulting. We recommend the readers to check the company website, wherein many photos about the facilities can be found. The following are some images of the integrated cattle farm business facilities:
Fantastic growth through M&A Acquisitions and Joint Ventures
SIAF has shown fantastic growth pace in the past ten years. We could read in the documents put out by the company the following transactions, or agreements:
- Tri-Way Industries Ltd., Hong Kong (“ TRW ”); a company incorporated in Hong Kong.
- Macau EIJI Co. Ltd., Macau (“ MEIJI ”); a company incorporated in Macau, which is also the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd.
- Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd, China (“JHST”)
- Power Agriculture Development (Macau) Ltd., which owns 45% of a corporate Sino Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“ SJAP ”).
- Joint venture, Enping City A Power Prawn Culture Development Co. Ltd., China (“ EBAPCD ”)
- Enping City A Power Beef Cattle Farm 2 Co. Ltd., China (“ EAPBCF ”)
On July 17, 2017, SIAF reported an agreement between the Agricultural Bank of China and Jiangman Yili Fisheries Co. Ltd.; a subsidiary of Tri-way Industries Ltd. (Sino Agro Food, Inc. holds 36.6% ownership interest). The agreement signed is a Bank-Enterprise Comprehensive Strategic Cooperation Agreement that includes a revolving credit facility to Tri-way.
“It is eligible to be drawn incrementally up to its maximum line of RMB 100 million, with the maximum line intermittently increased as experience and corollaries between ABC and TW/JFD materialize. The monetary amount designated for each draw and its use will be determined in consultation between both parties. A rolling audit of TW/JFD by ABC is one of the conditions that must be met satisfactorily to permit continued use and increase of the revolving credit facility.” Source
Additionally, the company will be able to enjoy the following financial services among others : Personal banking VIP channel, bond and debt advisory, foreign lending and/or foreign investment facilitation. Good relations with banks are usually appreciated by the market. The news may explain the recent share price increase in July as well as the rampant volume. However, the most relevant, in our opinion, was that the company expects to increase export sales aggressively and the bank will be helping:
“TW plans to develop an aggressive export sales side to complement its already strong domestic sales operations. This is one of the primary reasons ABC has requested the Company to become an Enterprise Partner during the build-out phase of its development.” Source
Mr. Solomon Lee, Chairman, and CEO of Sino Agro Food, Inc., celebrated the agreement with the following words:
“The ‘win-win’ partnership signed today with ABC, increases TW/JFD’s capacity to meet its development goals while enhancing its status as an economic driver throughout the region. ” Source
On July 12, 2017, Dun and Bradstreet “assigned its strongest credit rating, 5A 1, to Tri-way“. Sino Agro Food’s Chairman and CEO Solomon Lee said the following words:
“The carve-out and spinoff strategy for our aquaculture assets is a long and complicated process. The carve-out was successfully completed and announced in March. Subsequently, we have worked diligently with advisors and regulatory agencies toward advancing our plan to distribute half of our equity in Tri-way to SIAF shareholders, and to obtain financing to accelerate Tri-way’s aquaculture development, capacity, and sales. We are confident that these efforts are proceeding in accordance with our aims. We are gratified by D&B’s report, as it validates our confidence in Tri-way’s ability to secure favorable financing“
Sound Financial Situation
As promised, the following are the astonishing financial ratios that we mentioned. The company is quite profitable:
|Operating Margin (ttm)||18.03%|
|Return on Assets (ttm)||5.56%|
|Return on Equity (ttm)||10.12%|
Finally, there is cash in the balance sheet. The company has some debt, but the credit rating is, as we saw, very good.
|Total Cash (mrq)||3.99M|
|Total Cash Per Share (mrq)||0.18|
|Total Debt (mrq)||47.55M|
|Total Debt/Equity (mrq)||6.64|
|Current Ratio (mrq)||9.73|
|Book Value Per Share (mrq)||27.16|
The most relevant is the book value per share, which shows that the company is trading at a very large discount. This time taking a closer look into the balance sheet figure is a must. We could find that the long term investments and the PP&E assets are very significant. The following are the assets reported in the last three years:
|Cash And Cash Equivalents||2,576.058||7,229.197||3,031.447|
|Short Term Investments||–||–||–|
|Other Current Assets||84,845.966||83,811.929||75,951.591|
|Total Current Assets||320,788.166||350,651.723||281,759.362|
|Long Term Investments||139,854.216||769.941||817.127|
|Property Plant and Equipment||278,558.13||235,533.523||196,795.454|
|Deferred Long Term Asset Charges||–||–||–|
Conversely, the following are the liabilities:
|Short/Current Long Term Debt||9,958.322||10,124.587||20,977.772|
|Other Current Liabilities||–||–||–|
|Total Current Liabilities||23,449.918||28,382.099||52,349.246|
|Long Term Debt||38,273.176||41,256.973||18,109.985|
|Deferred Long Term Liability Charges||–||–||–|
SIAF is an interesting company hidden on the OTC Markets. The company is extremely undervalued by the market, thus it should be considered a hidden gem. We could not find other relevant reasons to explain the illogical valuation, other than the fact that SIAF has its assets in China. On top of it, the company is exploring alternatives and selling divisions to boost shareholder value. The market has commenced to push up the share price, but there’s a lot more run room for the stock. The upward trend will continue if SIAF keeps implementing the same strategy. Hence, be alert on this name.
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Image courtesy of Flickr
Disclosure: We have no position in SIAF and have not been compensated for this article.