Celestial Nutrifoods Some thoughts

Celestial Nutrifoods reported its FY0809 earnings in Feb 2009.

CN at the point of announcement came from a postive cash to a negative cash balance (after taking into consideration the potential convertible bond 1200+ RMB) . This is mainly due to the heavy investment for the Protein Milk product. Some thoughts here....

Some points
1. China Milk Scandal from Wikipedia

2008 Chinese milk scandal was a food safety incident in the People's Republic of China involving milk and infant formula, and other food materials and components, adulterated with melamine.
By November 2008 China reported an estimated 300,000 victims,[1] six infants dying from kidney stones and other kidney damage, and a further 860 babies hospitalized.[2][3] The chemical appeared to have been added to milk in order to cause it to appear to have a higher protein content. In a separate incident four years before, watered-down milk had resulted in 13 infant deaths from malnutrition.[4]
The scandal broke on 16 July, after sixteen infants in Gansu Province who had been fed on milk powder produced by Shijiazhuang-based Sanlu Group were diagnosed with kidney stones.[cm 1] After the initial focus on Sanlu - market leader in the budget segment - government inspections revealed the problem existed to a lesser degree in products from 21 other companies, including Mengniu, Yili, and Yashili.

Here we see the China milk scandal breaking out in 16 July.

2. In an announcement 28 August, Celestial announced that there are spending 700+RMB in 100k tonnes in protein milk.

Over here, I believe Celetstial has already done its due dilligence for at least last month and has done enough due dilligence to see a great opportunity to go into. So within 2 months after the Scandal broke out, it committed to spending a high capex despite the knowledge of the impending bond conversion.

The CB issue while posts some risk, is in my opinion will be a walk over. Besides the points from my previous posts, lets look abit into its history. In 2005, Celestial was the only soya bean related company to be invited by the Daqing government to invest into the Soya Bean Tech high zone and had a interest free loan. Here it show strong links with the government (at least the last 1-2 years).

It has been going up by virtue of the recent rally. I believe it is apotential big retail consumer giant in China in the making, and with a PE of 1.2 I will continue to hold. It has been shorted heavily and I believe short covering fuel and once the CB issue is over, it will continue to attract stronger hands.