Real Nutriceutical Group (瑞年国际): Stable & Growing

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The group was in net cash position all this while although its borrowings was in upward trend. Borrowings surged up in 2014 due to acquisition of 60% equity stake in Magic Galaxy. 

Current ratio and acid test were more than one. Depreciation / PPE ratio was less than 10%. Trade receivables / Revenue ratio is quite high at 45%, but its cash conversion cycle is manageable around 60 days. 

PPE contributed around 40% of its total assets which is quite a norm for a manufacturer in my opinion. Invested capital is contributed by 80% shareholders' equity and the rest from borrowings which is quite healthy to me. 

ROE and ROIC were dropping throughout the years as the growth rate in capital was faster than the growth in operating performance. ROE and ROIC were around 14% and 18% respectively. 

Operating cash flow was quite good, net cash from operating / net profit ratio was more than one. 

But somehow the group spent a lot in capex since 2011 to expand its production capacity as well as technical know-how for the past few years. Capex / Sales ratio was around 28% and the amount of capex spent was around its net profit recorded which is quite high

Thus, it's not surprise its free cash flow was negative from 2011 to 2013. The group able to chalk up a positive FCF in 2014 and even recorded a 5% FCF / Sales ratio. Things remained to be seen whether the group able to continue to record a good positive FCF moving forward. Else, the group need to look for external funds to fund its capex or worst case, they are cooking the book which is a nightmare for the investors. 

Mr Wang FuCai is the Founder, Chairman as well as the CEO of the company. He is responsible almost everything related to the group. He has 30 years of experience in the health care and pharmaceutical industry. 

He currently having around 22.9% ownership of the group. 

Some of the recent corporate movements of the group

1) In May 2013, the group issued a convertible bond worth HK200 million with 6% annual interest and conversion price of HKD3.0 which is higher than current price. Thus, probably nobody will convert it. 

2) The group acquired 60% Magic Galaxy for RMB200 million whose core business is manufacturing of high end eye drop products in PRC. 

3) The group entered into MoU in Jan 2015 to acquire Ailire Investment who operates over 600 integrated drug retail chain stores which have strong business presence and retail network for medicine sales in China. The group target to get RMB100 million from each retail shops to get HKD600 million increased in sales. This probably will be the main growth aspect from the group in 2015. 

4) The group plans to spin off its beverage business through a separating listing on the stock exchange. The group's beverage business only able to record around RMB450 million sales in FY2014. Thus, I think the proceed raised will not be that high. 

5) In April 2015, the group issued a private placement of about 130 million new shares to third parties at HK2.36 per share to raise HK303 million. Perhaps HKD2.36 a good support? 

In terms of valuation, PE ratio is around 4.4, dividend yield is quite low due to low payout. Enterprise value multiple is quite low at 2.4, thanks to its high operating profit. 

Perhaps, is a good company to invest in? Have to take note of its capex amount and cash flow. 

Reference
- Annual Report
- Company website

Real Nutriceutical Group (瑞年国际): Amino acid-based nutritional supplements player

Real Nutriceutical is a provider of health-related products, with a primary focus on amino acid-based nutritional supplements in Chinese market. The group is the largest manufacturer of amino acid-based nutritional supplements in China for the past 10 years. 

The group basically has 3 segments, namely nutritional supplements and general health food, health drinks and pharmaceuticals. 

The group has manufacturing facilities in Wuxi and Nanjing of Jiangsu Province. One of the Wuxi plants is capable of producing nutritional supplements and general health food products in the form of tablets, capsules, liquid and powder. The other Wuxi plant produces health drinks including herbal tea and amino acids drinks. The group manufacture high end eye medicine and anti-cancer drugs at our pharmaceutical manufacturing plant in Nanjing. All production lines in operation are GMP compliant.

The Group has been invited as the first and only member from China to join the International Council on Amino Acid Science ("ICAAS"), a highly recognized international institution in the study of amino acid science.

For ten consecutive years from 2006 to 2015, the Group’s amino acids tablets have been approved as the only official gift for oral consumption by the delegates of The National People’s Congress of the People’s Republic of China (NPC) and National Committee of the Chinese People’s Political Consultative Conference (CPPCC) 

The group sell their nutritional supplements and general health food products to a network of regional and local distributors to a wide range of retail points of sale in 29 provinces in China. For its health drink, the group sell through distributors to convenience stores, restaurants and supermarkets while its pharmaceutical products were sold to about 600 hospitals

The group also sell our products through the Real Nutri Health Stores and internet direct sales platform.

At the end of 2014, its health and nutritional supplement products were sold through third parties’ retail outlets of approximately 77,000 points in China.

There were around 200 Real Nutri Health Stores as to date to build closer bond with products' end users, provide free body checks, health consultations and activities.

Apart from that, the registered members of its Real Nutri Health Club increased to over 350,000. The group able to collect and analyse data from their club members' consumption preference.

Revenue had been steadily increasing for the past few years. The group's performance dropped a bit in 2012 due to dropped in product sales. Profit margin was quite stable. 

Dividend payout was quite low at around 10% but dividend declared increased from 4cents in FY2010 to 7.2cents in FY2014 recently. 

Majority of the group's revenue comes from its health & supplement segment with high gross profit margin of around 80%. The group tried to penetrate HK market before with its amino acid supplements but to no avail after few years of below par result. 

Health drinks segment contributed the second to the group's performance. Gross profit margin jumped in FY2014 due to lower outsources of health drink manufacturing to subcontractors. This scenario probably will continue moving forward. 

Performance of its pharmaceutical segment improved organically as well as contribution from the new acquisition of 60% owned Magic Galaxy whose core business is manufacturing of high end eye drop products in PRC albeit with lower profit margin. 

The group's point of sales for its supplement products increased from 50k in FY2010 to 77k in FY2014 while for its pharmaceutical products, the group's sales has delivered to 600 hospitals from mere 100 hospitals earlier. 

The group started to open its Real Nutri Health Stores in 2010 and able to reach around 200 units in 2014 while its club members almost double in 2-3 years. 

There is some growth prospect in this company, will write more in next post. 


Reference: 
-The group's website
-Annual report 
-Press release