Chlorophyll Inc

Core Business
Supposily to be the largest company specializing in the production of pedigree bull semen, pedigree dairy cow embryos and raw milk in the growing dairy industry of China. Four areas of growth
1) Produces bull semen for sale to other farmers and insitutions
2) Using cow waste to make fertilizers and sell it
3) Soon to produce their own dairy products
4) Sale of raw milk

Risk:
Their cattles are reared in farms located in Daqing in Heilongjiang Province in the PRC.
Natural calamities such as drought, snowstorm, flood or other natural disasters would have a significant adverse effect on their operations and business if there is significant loss of their livestock or damage to their facilities that would disrupt their production processes.
Their business is highly dependent on the health and physical condition of their herd. Sickness or disease infection may lower the weight, milk yield and reproduction capability of our cows as well as the quality and quantity of the semen produced by our sires. They indicated that they have in place stringent health management
and hygiene control measures, which encompass the critical processes of processing and collection of
bull semen and embryos, milking of dairy cows, the sanitisation of cattle sheds and farms, as well as the
monitoring of the health condition of their herd and staff.
In addition, any unfortunate events that have negative impact on the dairly industry in China such as the recent Milk scandal, affects demand.


Is the company focused?
Focuses on breeding cows, selling the raw milk , creating more quality cows using semen, selling fertilizers also.
Profit comes mostly from semen.



China’s Demand for milk:
"So great is the demand for milk and milk products that China’s dairy industry has been experiencing a shortage situation of raw milk, primarily due to the inability of the local dairy industries to meet demand. In China, the average annual milk consumption per capita rose from 2.5 kg in 1984 to 14.3 kg in 2003" This pharse was stated in their annual report. However as we all know, the recent scandal has cause abit of a hicup in the Dariy industry of China. The important questiona to ponder is, will the Dairy Industry in China ever recover? How long will the downtrend in this industry last?
http://chinamilk.listedcompany.com/newsroom/20080926_193047_G86_B2C597F8D5621CE4482574D0003EAFAD.1.pdf

Future Growth Drivers
The company is improving their herd size to drive higher milk yield
• Continue to enhance internal breeding programme
• To import another 3,000 Australian Holsteins around June 2008
• Explore acquisition opportunities; targets identified
• In negotiation with a government-owned bull semen producer in Heilongjiang Province for a possible acquisition
Increase production ofquality bull semen and cow embryos
• Focus on growing/importing quality Holsteins and bull sires so as to raise production of bull semen and cow embryos, which Generally command higher margins
• Commercialize gender-controlled bull semen and cow
Embryos Move downstream to process Raw milk
• To commence milk processing for an existing major customer as soon as possible
There is a rapidly growing penchant for international food and beverage concepts which use a lot of milk and milk products. The PRC government has also been promoting the need for nutrition as evidenced by the government’s nation-wide School Milk Programmed.


Economics of scale:
Possibly the biggest company that has dairy farms in China.
Possible Competitor is Fonterra
With 9 farms in the cities of Daqing and Harbin, we own an impressive herd of 15,0412 pedigree bull sires,
Our Group owns a total of 100,000 square meters of cow-sheds, 125 million square meters of grassland and 1.83 million square meters of farm land

Market Leadership:
More than 700 model dairy farms have been established around Beijing and Tianjin, with 280,000 cows, according to the Chinese government. Plans are in the works for hundreds of other similar farms, and there are plans to speed up the use of selected dairy genetics

Focus a lot on research:
At China Milk, they placed a strong emphasis on research and development.

(From their annual report)
We collaborate with 12 external researchers and technicians from reputable research institutes such as the HLJ August First Reclamation University in the PRC, working on various initiatives to improve our efficiency, productivity and product quality.

These initiatives include the increasing of milk production in our cows; raising protein levels and fat content of our raw milk; increasing the success rate of embryo transplants; as well as enhancing the quality of embryos and Total Mixed Ration of cattle feeds.

Our collaboration with external researchers has also allowed us to process liquid manure from cattle, for the production of organic fertilizers that are biodegradable and environmentally friendly. These composite fertilizers are used in our farms, as well as sold to other customers throughout the PRC since February 2002.

Comment: Their economic moat seems to be fairly strong, though one must give this company more time to build up it's economic moat in the coming future. Suffice to say there are no competitors so far that can match up to the size and scale of China Milk.


Management holding their own shares?
The information can be found in our Annual Reports. And announcement through SGXnet will have to be made when management and directors are buying/selling shares.
At the moment, none of the management and the directors have been buying/selling shares since IPO.
Should you have any further queries, please feel free to contact me.

Regards
Martin Choi

Chief Financial Officer

Conservative debt
Long term liability: 1,074,869,000
Net Profit for the year 2008: 480,600,000
Comment:
Management is able to pay off total liabilities within 3 years if they are able to continue to yield NPAT figure in 2008. Suffice to say their reserves of 1.4billon RMB is also able to use if NPAT can’t cover.

ROE
Now looking at their ROE figures, im kind of impressed with the results. The first two columes are empty beacuse, im generally lazy to caculate ahah. But with ROE exploding to figures like 26%, i don't think there should be anything to worry about with regards to management's ablility to use cash to their best potentials.

Quality Net Profit after Tax
Check their depreciation, is it acceptable?
Looks acceptable
The Group’s depreciates property, plant and equipment on a straight-line method over the estimated useful lives,
starting from the date on which the assets are placed into productive use. The estimated useful lives reflect the
directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the
Group’s property, plant and equipment. The carrying amount of property, plant and equipment is disclosed in
note 12.

R&D as an expense or an asset?
Nil
Any one-off Charge or profit?
Yes, financial derivatives an increase of 877% from 2007. Take note, that once this is discounted, its Net profit growth is only a mere 8% and not 23%.
Still its intrinsic holds at least $1.00+
In addition , their net profit increase from 2007 to 2008 is calculated as $9million SG dollars or 42 million RMB, this doesn’t include the increase in financial cost of which I have no idea how it is link to the increase in the account change in fair value of F.I


Scanning of RED flags in the company
Is there a growing gap between cash flow from operation activities and earnings (cash flow has to be higher then net earnings for refinancing purposes )
2008 / 2007 and 2006 (All in terms of '000)
Cash flow: 402,903 / 381,350 and 289,850
Net income: 480,607/ 378,500 and 272,600
Not a problem here.

Net Earnings is growing faster then sales
Not a problem here
Disproportionate increase in account receivable vs Sales increase
Not a problem here

Unusual increase in inventories vs. sales increase
Sales: 2,217,316 and 1,800,000
Inventories: 149,944 and 134,377
Not a problem here

Any large write offs?
Nope

Quality of the earnings
-Did they include profits from the past periods? (No)
-Under provide for future expenses with current sales, bad debts?(No)
-Increase in reliance of earnings sources apart from main business? (No)
-Cutting pay in workers, employees, R&D etc? (No)

Capital Expenditure
The gorup have been spending alot on Capital Expenditure, this is vital for the company to no.1 establish their economic moat no.2 to get ahead of competiton no.3 to build up brand name and improve on their margins/net profit/revenue etc.
Common sense depicts that , the nature of their business does not require much capital to replace machines , factores or euiptment just like manufacting companies. Therefore , this is not a capital expenditure intensive company.

Final Comments
Beacuse finnancial ratio keep changing in accordance to share price, i decide not to post any ratio from now onwards. But buying China Milk from 0.80cents per share and below should be have a decent margin of safety with high potential to the up side.

Using Adam's koo EPS growth model
Intrinsic is $1.11 based on estimated no growth scenario and 0.13 dividends
At least $1.00 per share based on 0.10 with 5% growth.

Core Business:
Based in Longkou City in Shandong Province, Sino Tech-fiber produces polyurethane (PU) and microfiber synthetic leather, these products are then sold to manufacturers and trading companies that produce fashion apparel, sports apparel and equipment, luggage and travel accessories, as well as upholstery furnishings for furniture. Take not that Sino Tech-fiber is the producer and supplier of these raw materials and not a manufacturer of the end products.
Sino Tech---Processed materials ---Manufacturing companies---Finished products---China’s consumers

Profit breakdown and sales location:
Microfiber Synthetic Leather: 40% of sales
PU Synthetic Leather: 60% of sales
92% of sales come from China
6% of sales come from India
2% from other countries