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To OTC Journal Members:
Let's say you wanted to be in the food business. That's a pretty broad industry. You have the producers- the farmers who grow the crops and/or raise the animals. You have the processors- who turn the farmer's products into consumables. You have the distributors- the middle men who get the finished products into markets, convenience stores, restaurants, etc. Then you have the retail providers- this is the last stop before the consumer actually eats the food.
Imagine owning shares in a company with a 40% growth rate, making money hand over fist, and filling the role at every level in the supply chain. From planting the seeds and feeding the livestock to a mouthful of lunch going into one of the employees at the China manufacturing facility of Dell Computer.
It's a marvelous opportunity. Read
You plant a seed in the ground. You water, fertilize, prune, cultivate, grow, and eventually harvest. It's food that will help feed 1.3 billion. Once harvested, the product goes to a processor/packager. Then a distributor takes it from the processor, and delivers it to the store, restaurant, cafeteria- wherever it takes its final step before ending up on the consumer's plate. Then, you plant another seed, and start all over.
Along the way the grower, processor, distributor, and final seller have businesses that make a profit. That's a bunch of companies sharing the prosperity. Here's why I'm very taken with today's new idea: This company wears all the hats- from Hand to Mouth- from planting the seed to the end consumer- they do it all, so they make money at every step in the process.
GHN Agrispan is capitalizing on China's burgeoning food industry- and they are doing it smack dab in the middle of one of China's Special Economic Zones- Xiamen City. The SEZ's have been granted a special economic system highly conducive to doing business for major multi national corporations.
Xiamen City- their home base, is located on the coast in the south, and hence has a gigantic port ideal for manufacturers. GHN Agrispan (GHNA) has 4 major business segments: Modern Agriculture, Frozen Pre Cooked Meats, Group Catering, and Retail Distribution.
As stated above- a company that provides
from hand to mouth. From planting the seed to the consumer's mouth. Is
it any wonder they are growing double digits?
GHNA grows pollution free fruits and vegetables, raises pollution free livestock, poultry, and seafood, and boasts eco-friendly organic gardens. They have 4,100 acres of contracted coop, 260 acres of pollution free vegetables in Fujian Province, 80 acres of apple orchards in Gansu Province, and a 494 acre eco friendly organic production facility in the Longyan Agricultural Bureau.
GHNA also raises 200,000 chickens, ducks, and geese on 3.3 acres- has a 58 acre abalone farm, and 25 acres in Ningbo on which they can raise about 2 million pigs annually. Where does all this production lead?
Right up the whole supply chain. Right from the farm to the mouth. As I said- this is a Hand To Mouth company.
And, lest you think it's just produce- think again- they have lots more stuff:
GHNA offers a complete line of ready to eat foods- they are packaged and distributed to grocery stores all over China.
How does the food find its way to the end consumer with this company? Several ways. As mentioned above, they have a Retail Logistics division that distributes their products all over China to Chain stores, small grocery stores, restaurants, etc.
In addition, the company has a thriving catering business. When I say catering, I'm not talking about the caterer who gives you a price to serve a choice of meat or fish at your daughter's wedding- I'm talking about long term contracts with the major companies in the Xiamen CEZ to provide cafeteria style catering to their thousands of employees on a daily basis.
How about this for a customer base:
From the farm to the lunch table at Dell Computer's Xiamen manufacturing facility. It's hand to mouth. And, lest you think the Dell Computer manufacturing and assembly facility in Xiamen is some sort of seedy, toxic factory employing 12 year olds, think again.
Here's what their lunch facilities
look like. Hardly the picture some choose to paint of the China manufacturing
facilities. Hi tech, state of the art, very comfortable long term labor
force. Consistent catering business for many years to come.
This company is going to deliver something close to $40 million in revenues this year, and probably about $8 million in net profits.
The three offices you see pictured here manage their nationwide platform of Agriculture, Frozen pre packaged foods, Group Catering, and Retail Logistics.
From the nearly $40 million in revenues, the company is likely to deliver about $7.5 to $8 million in net profits- that's about 20% net margins- that's unheard of in the food business- 5% net is more like the norm in this highly competitive industry.
This company is extremely profitable because they control everything from hand to mouth- they make money at every stage in the process, where most food companies don't.
This all equates to about $.17 to $.18 in EPS- somewhere in the 4x to 5x this year's EPS with the stock trading (or actually not trading much yet) this year's earnings- another stock screaming own me at this level. Also- this is another company with a great balance sheet. Cash, lots of current and non-current assets- absolutely no long term debt.
And- the icing on the cake- today's post close news.
GHNA delivered big news that could put this one square on investors' radar screens. GHNA announced a major new multi year contract. In the company's press release, they state they have signed an agreement with a Fortune 100 retail giant in China- it's a one year supplier agreement with an automatic renewal feature.
The company states it will be receiving purchase orders from the giant retailer to deliver certain of its products to locations throughout China.
The retailer is not named in the press release. However, if you read the 8K filing with the SEC related to this news- the retailer is revealed to be WalMart. Major order flow from WalMart- whether in the US or in China, can make a company's entire business.
This kind of vertically complete company in any rational market is worth at least 10x EPS, if not more. Therefore, it seems to me the upside from here is $1.50 to $2 on a $.75 stock as the company exists today- higher with more contracts.
Seems fine to pick up right up to $.90. Like BOPH- the stock is highly illiquid and under followed. However, note since I was the first one out on Bohai, the stock has traded over 600,000 shares in a very short period of time. You get the first look.
Here's the post close news release for your review: