I met Synear Foods yesterday after their AGM.  An investor/subscriber had asked me whether this stock was undervalued given its more than RMB900mn in cash as at the end of 2009.   I had liked this stock before but it has disappointed in terms of earnings outlook, absence of any dividend and even the huge amounts of cash have started to dwindle.

The 2009 annual report can be found here.  In FY2009 Synear reported a 12.1% fall in revenue and a 23.8% decline in net profit to RMB169.4mn.  Cash and bank balances was RMB925.2mn.  The company has not paid a dividend since 2007.

On the positive side, the Company indicated that profits should have stabilised, ie bottom out in 2010, ie no further profit decline and that management may consider paying a dividend subject to how the business does this year.   They also indicated that the auditors had confirmed that the cash was there by checking with the banks directly and that this question had been raised at the AGM.  So it looks like the worse is over and the business has bottomed.

However, when we discussed the operating environment and capex plans, I came away feeling that it was still too early to look at investing in the stock.  The road to recovery was slow at the top and bottom line with utilisation levels for all its four factories at low levels.  The cash would also continue to be depeleted as it completes the construction of its 5th factory over the next three to four years.  Watch out for my more detailed commentary and areas of concern for me in the business