Minz SP has denied the allegations from Glaukus Research

China Minzhong (Minz SP) - a subsidiary company of PT Indofood Sukses Makmur Tbk (INDF, 6,500, BUY, TP Rp 7,500) - has denied the allegations from Glaucus Research and assess that those view was reckless opinion and misleading.

The vegetable processing companies of the People's Republic of China (PRC) was previously accused by Glaucus Research Group. Glaucus accused Minz has inflated the amount of assets and income which are presented to the Singapore Stock Exchange (SGX).

Minz also accused and reported their total capital expenditures of 2011-2012 were different from that recorded in State Administration for Industry & Commerce (SAIC).

Minz said that Glaucus did not understand the business and operational environment in China, and stated that any firm statements have been adjusted to the financial reporting standards (FRS) and have been audited by Crowe Horwarth First Trust LLP.

In detail, the following rebuttal by Minz against Glaucus report:

1. No sales were inflated. Legal adviser of the Hong Kong Trading Co. Yifenli willing to provide evidence of the sales contract and to confirm their trade relations.
2. Proof of purchase from the company to Chengdu Shufeng for question period are also available.
3. Minz said that there was no major consumer transactions are covered, including the Putian that has a normal commercial contract. Related to Glaucus allegations that there is a covered affiliate transactions in Putian, the company said that Lin Guo Rong (Chairman of Minz SP) and legal counsel of one of its subsidiary, Ping Guo Lin, was never involved in the daily activities of management and operations. Both of them also do not have the Putian stock either directly or indirectly.
4. Capital expenditure stated by Minz can be provable. Glaucus also accused only show Minz 2010-2012 financial statements partially and did not consider differences in the calculation of generally accepted accounting principles (GAAP) in China and the FRS.
5. Financial performance can also be proved as Glaucus is considered to have improper of EBITDA count and did not understand the tax calculation. Income derived from the sale of fresh vegetables are tax-free while the income of vegetable processed and branded products are taxable.

Minz also stated that the company has received letters of interest from INDF which will be announced today. Although we have not been sure what kind of bid that will be submitted by Indofood, but there is a possibility that INDF intends to increase its ownership in Minz as the majority and took over the operations and management thus increasing control by Indofood.

Earlier, INDF acquired a 29.3 % stake of Minz with average purchase price of SGD 1.02 per share or totaling SGD 195 million.

Although, Minz official explanation were relief but we assess the condition of Minz is overhang and has a negative sentiment from this scandal. Sentiment was mainly exist when it's linked to a similar scandal and delisting from some Chinese companies were listed on the Singapore (S-chips).

The majority acquisition of Minz stake will make the overhang condition fade away. However, INDF is still consider to be  potential for investors.

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