China Minzhong
Alliance With Indofood



Indofood comes! China Minzhong  announced issue  of  98m new 
shares by way of private placement to Indofood Sukses Makmur Tbk, a 
leading Indonesian packaged food producer, at SGD0.915 per share.
The new shares will represent 14.95% of total shares outstanding 
following the placement. Upon the completion of the deal, Indofood will 
surpass GIC becoming the biggest shareholder of Minzhong.
The alliance with Indofood should benefit Minzhong. Indofood is a 
leading packaged food producer in Indonesia. With the support from 
this strategic shareholder, Minzhong could not only expand its revenue 
by supplying raw materials to Indofood, but also leverage on Indofood’s 
distribution network to march into fast-growing Southeast Asia market.
Upgrade earnings forecast. We raise our revenue and net profit 
forecast for the next three years on the back of the potential synergies 
generated from the deal. Despite the dilution in EPS due to the 
enlarged share base, we believe China Minzhong can leverage on 
Indofood’s strength and experiences to accelerate its growth thus offset 
the dilution effect and protect minority shareholders’ interest.
15% control might not be the end of the story. Indofood’s acuqitision 
track records shows that it usually prefers to controlling the majority of 
the targeted companies. Thus we suspect that 15% stake in China 
Minzhong is probably not the end for Indofood. In our view it is highly
possible that in the future  Indofood will acquire more shares in open 
market or from other big shareholders such as GIC through another 
placement. We even cannot rule out the possibility of a privatisation 
offer by Indofood some day in the future.
Maintain BUY and raise TP. We continue to like China Minzhong for 
its prosperous growth outlook and undemanding valuation. Better use 
of the proceeds from the placement would be a catalyst for the stock. 
We still believe some dividends payment in FY13 is possible. At current 
low PE multiple, even  a  small payout ratio could  give an attractive 
dividends yield.


Maintain BUY with target price SGD1.36, pegged to 5x 
FY6/14 PER.


Maybank Kim Eng Research