In his May 9 note, Tang says that Zixin, now based in China's Fujian province, has expanded into Hainan as well, with access to a "significantly larger" land area to use.
"Although currently in the initial stages, the group anticipates realizing profits from this expansion starting in FY2027.
"This strategic move marks Zixin's first replication of its model outside Fujian, demonstrating its growth ambitions in the agricultural sector," he says.
Zixin, having developed a new range of products, has begun to deliver "substantial" orders received in February, supporting the company's production volume.
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In FY2024, Zixin was able to fetch a net profit margin of 4.2% – its highest in over five years.
"These improving margins showcased the initial results of Zixin Group’s integrated industrial value chain, which includes the supporting industry of cold storage warehousing services, enabling the company to recover from the post-Covid crisis and return to profitability," says Tang.
For the more recent 1HFY2025, Zixin reported earnings of RMB7.7 million, versus a loss of RM3.4 million in 1HFY2024. Revenue in the same period was up 33.1% y-o-y to RMB156.7 million.
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"The company continues to make strong progress on its integrated circular economy industrial value chain across business operations, driving significant and organic growth in financial performance," says Tang.
The way Tang sees it, Zixin Group’s strong cash position and business model also position the company well to capture economies of scale as well as the benefits of the entire supply chain, further driving growth for the company.
"The company’s improving margins also highlight the company’s growth trajectory," he adds.
His target price of 6 cents is based on a discounted cash flow analysis with a terminal growth rate of 2% and WACC of 10%.
Thus far this morning, Zixin Group is the most actively traded counter with 13.74 million shares changing hands. Its share price has held steady at 2.9 cents, down 3.33% year to date.
