2021 Strategy Series: Nutryfarm – AZT (Post 2)

This is a continuation from my 1st post on Nutryfarm – AZT.

After the post, I went into the company with my initial purchase at S$0.405 after the write up was published. I have been, on an overall basis, accumulating the company with an average share price of S$0.375.

Note that I have stated I have 2 portfolios in the last post and this company is in the SG and US mixed portfolio.

Anyway the company recently reported their half year report and an update on durian business.

In short, for the half year report:

Revenue increase 615% for the 2nd quarter FY21 as compared to 2nd quarter FY20.

2nd Quarter FY21 is the first quarter (since don’t know how many quarters, but at least the last 3 quarters) that the company became profitable.

This was mainly due to the new CEO onboard and their durian business that they went in since the 1st quarter FY21.

As for the announce of the update on the durian business:

This paragraph caught my eye.

“…Reference the announcement on 8 January 2021 where the Company announced the import purchased agreement entered between Global Agricapital and Moonda, Global Agricapital has fulfilled its obligations to purchase and ship 200 containers of fresh durians by 30 April 2021 amounting to RMB130 million. As at 31 March 2021, Global Agricapital shipped 35 containers to Moonda and this was recognized in the Group’s 2nd quarter financial results announcement where the fruit trading business recorded a revenue of HK$27.9 million contributing substantially to the profit turnaround in the 2nd quarter. Accordingly, the Group expects the 3rd quarter revenue to increase…”

Doing the maths:

200 containers – RMB130m

35 containers – RMB22.75m (HK27.9m based on RMB1:Hk1.2)

165 containers – RMB107.25m (HK128.7m)

Wow…this meant that the 3rd Quarter results will have at least HK$128.7m revenue, which is already another 320% rise in the next quarter.

Recently the company has a presentation done by the CEO. The zoom link was listed on InvestingNote. So I went for it.

The pictures below are screenshot from the zoom meeting.

During the session, there are some interesting topics that was mentioned. Do note that the answers are my understanding and interpretation from the discussion.

Q1 – Are the contracts between the company and the distributors in China 1 time?

Ans: Not exactly a 1-time contract. But it is a contract for 1 year period. Normally customers will sign another contract for another year after the 1st contract is completed. This meant that the continuation of the contract is probably due to the relationship and network the company has. In this case, this is highly likely due to the relationship and network the new CEO has.

Q2 – Competition from Malaysia?

Ans: Malaysia has around 2000 containers only with 1000 containers coming to Singapore. They do not have enough capacity to satisfy China Demand. Furthermore, they are only able to export frozen durian into China – which has lower margin. Thailand is the only country that can export fresh durian into China.

Q3 – Competition from Indonesia and Vietnam?

Ans: Indonesia is not exactly an export country. Vietnam is banned to export to China currently.

Finally, the CEO was also asked about his background. I am not going to bored you with the details. But he is definitely down-to-earth and is extremely knowledgeable about the durian trade.

In Conclusion

In the announcements, we knew that all the contracts with China is amounting to RMB962m. If all the contracts were to be delivered and completely shipped within the year, that will be amazing.

Regardless, there is still the risk of the pandemic and uncertainty surrounding the import export trade.

Thus, since I have accumulated enough, I will hold my position and probably wait till full year report before making further decision.

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Stay tune for my next post!