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Small Caps in Focus - China Dairy Corporation Limited (CDC)
Profile
China Dairy Corporation Limited (CDC) engaged in the production and wholesale of raw milk and the rearing, breeding and sale of dairy cows. It also produces organic fertilizer made from cow manure, however, this activity only makes up a small portion of the Group's business.
Financials
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Column 1 |
Column 2 |
| 0 |
Quoted Shares on Issue :
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734,906,541
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| 1 |
Market Cap :
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$202,099,298.775
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| 2 |
Historical Yearly Dividend (Cents) :*
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N/A
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| 3 |
Historical dividend yield (%) :*
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N/A
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| 4 |
52 Week High - Low :*
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0.205 - 0.500
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Analysis
CDC is a profitable company with growing revenues, trading at attractive earnings multiples.
CDC as listed on the ASX are "Chess depositary interests" (CDI) in China Dairy Corporation Limited, a company incorporated in Hong Kong. Their business model is primarily to entrust local farmers into raising, feeding and breeding the Group's dairy cows, while providing the milk produced back to the group. The company opperates in Heilongjiang province, which has the largest number of milk cows and the highest production of milk among all the province-level divisions of China.
As at 30th of June 2015, the company had approximately $A169.0M in Assets, of which $A70.5M is cash according to the prospectus. The group claims a strong interest in continued growth and has promised to pursue acquisitions in Australia and China to this effect. Inflation data suggests that food prices are rising steadily in China, with local producers such as CDC well placed to capitalise on such growth.
As a domestic producer, it also faces potentially less regulatory risk in the Chinese market than the imported competition. The Chinese diary market has grown at a rate of 23 percent since 2000, and with the repeal of the once-child policy, this growth may well continue.
Risks
Due to the geographical grouping of the company's herds, it is exposed to risks such as cattle disease and contamination. Another key risk is declines in global and local dairy prices, as well as regulatory risk, and changes in consumer preferences.
In 2008, following a scandal that involved some producers adding toxic melamine to powdered milk, the domestic chinese dairy market was hit as consumers shifted their preference towards imported dairy; with the events causing hardship to two million Chinese farmers.
Recommendation
My recommendation is a buy on CDC, but ideally at a price below the key support/resistance level of $0.275 per share. An investor must be happy with holding this stock for the long term, as there is little coverage to drive price gains in between earnings reports. Also follow it closely for any changes in fundamentals.
