We opened a position in China Marine Food Group. The company reminds us of the early days at Caraco, although without the backing of a big parent company.
China Marine Food Group is a China based company that procudes dry fish products. Its products are sold in provinces of mainland China through 1,200 retail stores. The company’s products are popular and demand for them has been growing. The company is growing at a 20% rate and has a strong B/S and is not capital intensive.
The company expects $60M in revenue and $14M of net income for 2009. The company has a 20%+ net margin with net income basically equaling CF. The company has $4M of short-term debt and $37M in cash. At the current valuation of $67M, we are getting a company generating $14M of cash for about 2x.
The company recently signed distribution agreements to sell its products in two of the large provinces on China. The agreements will add 1,000 more retail stores at which the company sells its products, almost doubling from the current 1,400 stores. Also, the company has been expanding its manufacturing facilities. The company will finish the expansion of its manufacturing facility in 2009. The new facility will allow production of 20,000 tons, more than doubling from the current capacity.
We expect the company to make $14M cash for 2009. The company will spend $5M for the expansion, so we expect $8M to hit the bank. At end of 09, the company should have 45M of cash, w/ 4M of debt. At the current price of 67M, we are getting the company for less than 2x. The company can still grown in double digits, after 2009. We see a 4-5x return on the investment in 2-3 yrs.