• Established in 2009, China ShenShan Orchard (SGX:BKV) cultivates and sells kiwifruits in China. Its output accounts for 0.1% of China’s total kiwifruit production of ~3m tonnes in 2019. It develops varieties in-house and owns 6 premium kiwifruit variety rights, holding 83 trademarks and 56 patents.
• China ShenShan Orchard (previously Dukang Distillers Holdings) was listed in July 2021, when baijiu operations were sold back to major shareholder Wang Peng, in return for the kiwifruit operations at a valuation of RMB1.1bn. No cash or shares were issued. A new management team came on board.

About 40% of Planted Areas Are Mature Acreage

• China ShenShan Orchard operates 9 plantations in Chibi City, Hubei Province, the PRC, with total planted area of 241 hectares. Of these, about 40% are mature acreage (between 5 to 10 years). The remainder are immature plants of below 4 years. Harvesting of kiwifruits begins after 4 years of cultivation, and harvest takes place every Sep/Oct.
• It produced 3,769 tonnes in FY21, at a yield of 40.3 tonnes/mature hectare. The products are sold in China via wholesalers, distributors and e-commerce retailers.

About 34.6% of Total 696 Hectares Have Been Planted

• The land use rights expire in 2058 and 2059. This includes a 42-hectare plot of land which it does not yet have valid rights of use, which accounts for ~6% of total acreage and 11-13% of production volume. China ShenShan Orchard also holds the rights to 65,000 sqm of industrial land which houses the office and packing facilities.
• To raise production output, China ShenShan Orchard jointly develops farmland with land owners, or engages farmers to provide contract farming. For instance, it has a non-binding 30-year MOU with Chibi Green Industry Development Investment Co., Ltd to develop a 333-hectare land. Chibi Green will provide RMB150m investment while Shenshan will develop and operate the plantation.

Initiate Coverage on China Shenshan Orchard With BUY and Target Price of S$0.70

• Our earnings estimates for China ShenShan Orchard only factored in organic translates to FY22E P/E of 5.1x.

Source: SAC Capital Research - 9 May 2022