Can China Dairy Corp Defy the Trend of Weak Chinese ASX Listing?
The Company’s principal asset is a herd of over 22,000 cows located in Heilongjiang province
China Dairy Corporation is the latest Chinese company seeking to launch on the ASX, raising $24.3 million in a $150 million listing.
Since 2007 we have noticed an increasing number of ASX listings with origins in mainland China or Hong Kong and a total of seven IPOs last year belong to this category. With the exception of a few listings such as Dongfang Modern Agriculture Holding Group (ASX:DFM) or Traditional Therapy Clinics (ASX:TTC), most floats were rather disappointing for Australian investors. Can China Dairy Corporation defy the trend?
China Dairy Corporation Ltd is a Hong Kong agricultural company focused on dairy farming in China. The Company’s principal asset is a herd of over 22,000 cows located in Heilongjiang province, with an aggregate raw milk production capacity of approximately 238 tonnes per day. China Dairy was founded in 2005, and its majority shareholder is China Modern Agricultural Information, Inc.
China Dairy has increased revenue and earnings for the past two financial years. With the offer priced at a significantly lower trading multiple to other ASX listed agricultural peers, multiple expansion has the potential to drive the stock higher. With the Company representing a small fraction of China’s dairy industry – there remains considerable scope to grow via acquisition.
Depressed valuations and uncertainty associated with China Dairy’s majority shareholder may challenge the Company’s ability to attract investor interest. The China based nature of the Company’s operations creates transparency and governance risks, and may also challenge investor interest towards the stock.
As at 30 June 2015 China Dairy had US$54million cash in the bank and its recent financial performance appears attractive, the valuation and offer price is undemanding. While projected dividend payments mitigate risks, uncertainties surrounding its major shareholder, and challenging precedents set by other China focused listings remain significant obstacles.
Company: China Dairy Corporation Ltd
ASX Code: CDC
Shares on Offer: 100m CDIs
Listing Price: $0.20
Market Capitalisation: $150 million
Listing Date: Apr 5
This publication also appeared on The Australian
Author: Simon Herrmann
Mar 17, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.