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China Nutrifruit (OTC:CNGL) is a leading producer of premium specialty fruit based products in China. Its products include fruit concentrate, nectar, glazed fruit and fresh fruits. Its fruit base consists of golden berries, crab apple, blueberries and raspberries.

Given the recent sell-off in Chinese reverse takeovers on the back of multiple accounts of fraud, I decided to try and screen for companies that might be "legitimate" companies that have been collateral damage in the recent sell-off in the space.

Having gone through 10 companies, CNGL is the first company i've come across whose SAT filings (the Chinese tax filings - and the company's directors can go to 10 years jail for filing the wrong tax filing) come very close to the company's reported SEC filings. I will devote this article to just quoting the company's SAT numbers and comparing them with the SEC reported numbers. I will provide a more detailed analysis of the company in a subsequent article. The reason is that for most of these Chinese companies, the first step towards any succesul investment is to ensure that the company is a legitimate company and that it has the filings to provide that - a first step towards any confidence building measure.

While comparing the numbers below, please note that the company's SEC filing fiscal year end is March 31st while the company's fiscal year end for SAT purposes is Dec 31st.

SAT Filings (YE Dec): 2007; 2008; 2009
(RMB mm)
Revenues: 249.1; 277.3; 387.2
Profit Before Tax: 87.4; 100.3; 142.9
Profit After Tax: 74.3; 75.2; 107.2

(USD mm)
Revenues: 33.2; 39.6; 59.6
Profit Before Tax: 11.7; 14.3; 22.0
Profit After Tax: 9.9; 10.7; 16.5

SEC Filings (YE March): 2009; 2010; 2011
Revenue: 56.4; 72.9; 87.0
Profit Before Tax: 8.9; 26.1; 33.4
Net Income: 4.5; 19.2; 24.7

While the above numbers are not exactly perfect, the difference between the SEC filings and the SAT filings is much closer than what i've seen in other filings (note, TAX numbers and SEC reported numbers are never the same even in the US due to different tax and accounting treatment of depreciation, etc. In this case, the reporting periods are also different).

If we look at the company today, it has a market cap of $59m. As per its latest SEC filing it has a net cash balance of $50m. Also note that as per the SAT filings the company had $17m of cash on balance sheet as of 31/12/2009.

So even if we were to use the company's cash position as per the Dec-09 SAT filings, the company's value-net of cash today is $42m. That is less than 3x the company's reported net income number as of its Dec 09 SAT filings or less than 2x its latest reported SEC filing net income.

Given that branded food companies trade between 12x - 18x earnings, a company like CNGL, growing at 10-20%+ revenue growth, is extremely undervalued.

I will be following up with a more detailed company analysis in a future article, but CNGL has definitely passed my first criteria when investing in any chinese RTO company, which is a matching SAT filing.


Disclosure: I am long OTC:CNGL.

Source: China Nutrifruit: Matching Filings Make A Great First Impression