The “pig spear” on the tuyere

As the saying goes, there are many rights and wrongs above the air outlet. In the past two years, Muyuan shares have earned a lot of money with the super pig cycle, and because of this, they have been dubbed the title of “pig spear”. But just this weekend, an article titled “Will Makihara Shock Thunder?” “The article exploded the investment circle and triggered widespread heated discussion among investors.

Agricultural stocks have always been the hardest hit areas for financial fraud. The lessons of Zhangzidao and Young Eagle Farming and Animal Husbandry are still vivid. On March 15th, the stock price of Muyuan shares fell by more than two points, which to a certain extent reflects the avoidance of funds. Risky cautious attitude, then is the Muyuan incident a thunder or a false alarm?

As the saying goes,

Through combing the information, it can be found that the suspicion of Muyuan shares this time mainly focused on four main issues.

The first is that there is a significant difference between the rate of return on minority shareholders’ equity and the company’s ROE.

According to the financial report, the minority shareholders’ equity of Muyuan shares in the third quarter of 2020 is 15 billion yuan, and the minority shareholders’ net profit is 2.1 billion yuan. After calculation, the minority shareholders’ equity rate of return is 14%, while the company’s parent equity is 43.8 billion yuan in the same period. The net profit attributable to the parent is 21 billion yuan, and the return on net assets is 48%, which is a huge gap with the return on minority shareholders’ equity.

At present, there is basically a reasonable explanation for this problem. First, the minority shareholders of Muyuan shares entered late, and it takes a certain time for the project to reach the final strength and profitability. Before the capacity utilization rate is full, this part of the shareholders The relative rate of return is low.

Secondly, Muyuan established a joint venture with Huaneng Trust in 2019, and Huaneng Trust’s goal is long-term stable income, not based on the proportion of equity to distribute dividends for the year.

Combining the above two factors, the issue of the significant difference between the return on minority shareholders’ equity and the company’s ROE is basically supported and explained.

The double high of deposits and loans is another question that Muyuan shares has been questioned this time. Data shows that as of Q3 of 2020, Muyuan shares’ monetary capital was 22.5 billion yuan, while short-term borrowings in the same period reached 15.25 billion yuan, which made many investors Think of the former Kangmei Pharmaceutical. Moreover, Muyuan shares have a very low rate of return on monetary funds, but the interest expense is very high. It is obviously unreasonable to borrow money at a high cost with spare money on the account.

 

As the saying goes,

In fact, as early as July last year, the Shenzhen Stock Exchange issued an inquiry letter to the company on this issue. The explanation given by the company at that time was that the large scale of monetary funds was mainly caused by the statistical period of the short-term node. In fact, most of them are demand deposits, which will be used to pay for raw material purchases and labor service payments in the later period, so the deposit time is short and the interest income is low. The Shenzhen Stock Exchange did not follow up and seemed to accept Muyuan’s explanation.

The profitability of Muyuan shares far exceeding the industry average has also been questioned. As of the third quarter of last year, the gross profit margin of Muyuan shares was 64.67% and the net profit margin was 58.94%, while the data of Wen’s shares in the same period were 23.26%. And 14.95%, this data of New Hope is 13.03% and 8% respectively.

In fact, if you look at it carefully, this problem is easier to explain. First of all, Wen’s shares not only raise pigs but also raise chickens, and New Hope also has a feed business. The operations of each company are different;

Secondly, from the perspective of pure pig breeding business, Muyuan adopts a self-breeding and self-finishing model, which has a prominent cost advantage. The data shows that last year, the self-breeding and self-finishing model in the pig breeding industry made a profit of about 1500-1600 yuan per head, while the average cost of fattening purchased piglets was 30 yuan/kg, and the average profit per head was about 500 yuan. On the whole, the characteristics of Muyuan’s high profitability are also traceable.

Finally, Muyuan shares’ stubbornly high-level related-party transactions in construction in progress have also become the focus of heated discussions.

However, some market participants said in their interpretation that the reason for the high construction in progress is the rapid expansion of the company’s production capacity, and the establishment of the related party Muyuan Construction was to deal with the tax planning of the “VAT reform and increase”, and the expansion business was handed over to Muyuan Construction. Not only can it save costs, but it can also unify management and operations, and improve the speed and efficiency of expansion.

What do you think of Makihara shares that have been questioned?

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