華潤創業

Let me initiate some discussions first. I have not done detailed studies on it so my opinion is only preliminary.

According to the 2008 interium report:
Gross Margin is about 24.5%,
Profit Margin is about 5.4%,
ROE is 5.16%,
ROA is 2.53%,
Quick Ratio is 0.83%,
Current Ratio is 1.086%,
Debt/Equity Ratio is 0.27%.

From credit side, it does not have sttrong burden on debt and low interest expense. The survival of the group will not be a big problem. Its discrepency bewtween current and quick ratios tell that the cash cycle may be slow despite it is in a cash-based business. In other words, its efficiency of selling still requires improvement.

It also reflects that the selling expenses take a heavy part despite the cost of goods sold. Considering the 3 breweries it will aquire only have utilization of production capacity of 50% or lower, China Resources may not achieve the planned synergy profit had it not improved its selling efficiency.

The low ROE and ROA are the characteristics of basic food and drinks retails. Yet, the P/E of the purchase price, 11.12, with a projected EPS as 0.62 * 2(for whole year) = 1.24, will be 8.96. If we inverse the ratio, it will be 0.1115. Assume the market price of stock only represent the value of equity, at this P/E we expect a ROE of 11.15%, while the actual ROE is only 5.16%, a discount of 54%. From this point of view, the stock may be over-priced for the moment. Nevertheless, under the current situation, China Resources's business may provide a good capital shelter. Had it focused on improving sales efficiency, it would have strong potential to further develop.

My humble 2 cents.