Recently there have been a lot of negativities and attacks about China Green Agriculture (NYSE:CGA). For investors without the resources to see the company’s facilities in China, it’s hard to judge the merits of the arguments from both the long and short sides, especially with all the talks with relatively complex accounting, tax and business jargons.
Therefore, I decided to share some of the photos from my visit to CGA’s production plant and greenhouse facilities in Xi’an earlier this year. To be honest, the trip has been very disappointing to say the least. My discoveries are summarized with following key points with photos during the trip.
- Two of the three production lines were completely idled at the time of my visit (the day I visited was not, or close to the beginning or end of a public holiday in China. The time I arrived at the factory was 10:30am in the morning). Management's excuse was the lines were shut down for maintenance, what a nice coincidence.
- Their seemed to be very little activity at the factory. The plant’s operation also looked quite disorganized and inefficient.
- Warehouse was quite empty with only a handful of inventories dated over 6 months old.
- Greenhouse facilities are “low tech” and messy. It doesn’t look like it’s going to cost anywhere close to the $38M proposed investment! The facility is located in the middle of some undeveloped rural region, not an "industrial" park as management claimed on its 4th quarter conference call.
CGA has posted a number of pictures of its own production facility on its IR website at www.ir-site.com/cgagri/productionfacility.asp . I'll post them in comparison to the photos I've taken on my tour.
Myth #1: CGA posted a picture of its busy liquid fertilizer production line filled with bottles. URL of this picture is www.ir-site.com/images/library/cgagri/pr...
Reality: The same liquid fertilizer production line was clean but idle. It appeared to be idiled for quite some time. What a nice coincidence they happened to have two of the three production lines down just the day I visited.
Myth #2: CGA's IR website has a picture of more than 6 people working on a packaging line full of finished liquid fertilizer bottles. URL of this picture is www.cgagri.com/investor/fac09-max.JPG
Reality: The same packaging line shown in CGA's own picture was idled. You can see from the photo below the boxes at the end hallway are all unsealed empty ones.
Myth #3: CGA's 10-K states one of the company's advantages being the highly automated production lines.
Reality: There seemed to be very little activity at the production plant. The one-manned manual packaging job was the only noticeable activity ongoing at the factory. Does this look like the highly automated factory that produced $45,816,377 fertilizer revenue in 2010?
Myth #4: CGA's website has a picture of a warehouse full of finished goods inventory.
Reality: I asked to see the finished goods inventories and was taken to this room as shown in the photo below. Less than a quarter of the room space is occupied with inventories. The dates on the inventories went back to over 6 months old.
Myth #5: In its 10K, CGA stated its subsidiary Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd is to invest $38 million to build a "state-of-the-art" new R&D center.
Reality: Billboard showing greenhouses facilities and other unknown facilities under construction. Does the surrounding area look like an industrial park (like what CGA claimed on its Q4 earnings call)?
Reality: Completed greenhouses with strange looking exteriors. Does this look like something that’s going to $38 million investment to build?
Reality: Uncompleted greenhouse with simple brick, concrete structure
Reality: Close inspection of these "hi-tech" greenhouses under construction reveals they're made of simple, cheap bricks, motar, steel wire and foam insulation.
Reality: Uncompleted greenhouse. Does this look like something that’s going to $38 million investment to build? The facility is not located in an industrial park like CGA claimed on its conference call.
Reality: Inside one of the completed greenhouses.
Disclosure: Short CGA
