Momentum & Growth

Sino Agro Food Inc (OTCMKTS:SIAF) Is A Hidden Gem Among Small Caps

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.

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Sino Agro Food – The divisions

SIAF Investor Tour Group 2015

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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
Fisheries (CA) $ 85.4 $ 61.4
Organic Fertilizer (HSA & SJAP) 164.6 155.2
Cattle (MEIJI) 35.3 29.8
Plantation (JHST) 13.7 13.3
Corporate, Marketing & Trading (SIAF) 37.9 72.4
Total Revenues derived on sales of goods   $ 336.9     $   332.1   

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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 

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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:

Brood cows at SJAP

Company Website

Company Website

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 ”)

Recent Developments

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:

Profit Margin 32.16%
Operating Margin (ttm) 18.03%

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Return on Assets (ttm) 5.56%
Return on Equity (ttm) 10.12%

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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

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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
Net Receivables 170,773.87 196,761.89 156,808.331
Inventory 62,592.272 62,848.707 45,967.993
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
Goodwill 724.94 724.94 724.94
Intangible Assets 10,090.697 10,784.358 11,480.298
Accumulated Amortization
Other Assets 15,644.998 41,109.708 41,109.708
Deferred Long Term Asset Charges
Total Assets 765,661.147 639,574.193 532,686.889

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Conversely, the following are the liabilities:

Accounts Payable 13,491.596 18,257.512 31,371.474
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
Other Liabilities
Deferred Long Term Liability Charges
Minority Interest 99,166.749 87,238.538 62,580.576
Negative Goodwill
Total Liabilities 61,723.094 69,639.072 70,459.231

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Conclusion

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.

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Sino Agro Food Inc (OTCMKTS:SIAF) Is A Hidden Gem Among Small Caps
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