200_blueberry_cupcakeKim Eng analyst Pauline Lee likes Angel's blueberry cake."BUY, BUY” was the unanimous rating given recently by visitors after sampling China Angel’s pastries at the opening ceremony of its new plant in Shenzhen.

Together with 3 analysts, a fund manager and a trader, I visited Angel’s pastry retail outlet in Shenzhen and factories to check out what makes a top-selling moon cake brand.

Its moon cakes are distributed not only at 31 Angel pastry shops in Shenzhen but also across China at about 3,600 points of sales, which are mainly counters at supermarkets or hypermarkets.

Most of these counters (86%) are located in Guangdong, where the brand is a household name.

Buy its pastries - yes but what about the stock, which last closed at 16 cents or a historical PE of 5X?

For a company which integrates manufacturing with ownership of a highly recgonized consumer brand, China Angel's current valuation of about 3X FY08 PE (Kim Eng estimates) relative to the sector average of about 10X is incredibly low.

350_mooncake_counterShoppers are bombarded with a visual feast of red Angel banners, lanterns and sales promoters decked in traditional Chinese garb just before the moon cake festival."The consumer market is taking a M-shape.  You are either top-end or mass market. In-between players will be flushed out,” says executive director Daniel Leung.

The company has been maintaining full year net margins at above 20% (FY07, 23.5%), while cash reserves as at 31 Mar 2008 amounted to Rmb 107.3 million.

However, issues cited by detractors include China Angel's high receivables turnover, and possible margin erosion.

350_baoan_plant_openAnalysts from Singapore joined the government officials from regulatory bodies, the local media, distributors, customers, suppliers who visited China Angel's new plant at its opening. Photo by Sim Kih
One million moon cakes a day

two new production lines are fully-automated and each needs only half the manpower compared to our older line,” said executive chairman Patrick Liang at the grand opening ceremony of China Angel's new factory last week.

Despite torrential rain, the
opening ceremony was graced by hundreds of guests.

These included government officials from regulatory bodies, the local media, distributors, customers, suppliers and other business associates.

350_auto_mooncakeNew fully-automated plant at Baoan can produce 7,200 metric tons of mooncakes a year. Photo by Sim KihWorkers are no longer needed right from dough kneading, insertion of egg yolk, molding, loading into oven, unloading, cooling, dispensing of moon cakes, collection of baking trays, insertion of dry pack, right down to packing.

Quality inspections will still be manual, though.

At 32,000 sq meters, the new factory is three times the size of the existing one, and has capacity for as many as one million moon cakes a day.

1,100 moon cake production workers will be contracted for the 2 months leading up to the Mid-autumn festival.  This year, the festival falls on 14th Sep.

"We want China Angel’s brand to attain global status,” said Daniel Leung during a speech at a grand celebration dinner hosted for China Angel's business associates the same evening.

In the food business, that means compliance with exacting food safety and hygiene standards of industrialized nations such as Australia or the US.

Much effort was put into designing the plant, which distills principles espoused by baking experts in China, South China University of Technology’s faculty, Shenzhen Customs Inspection and Quarantine Bureau and Shenzhen Bureau of Quality and Technical Supervision.

350_manual_mooncakeManual operations for moon cake production at (old) Luohu plant shifted to new fully-automated facility at Baoan.Visitors were impressed by the production lines, which operate according to Hazard Analysis and Critical Control Point (HACCP), Good Manufacturing Practice (GMP) and Quality Safety (QS) standards in China.

For example, raw flour and eggs are processed in a clean room environment with less than 100,000 air borne particles per sq meter while moon cakes are baked in a 10,000-grade clean room.

In China, where stories of unscrupulous merchants who endanger consumer health abound, going out of one’s way to lead the industry with top-notch facilities makes visible difference in brand acceptance.

There were cases of Sudan Red (苏丹红), a carcinogenic industrial dye, being mixed into corn and other foodstuffs to dupe buyers with an appearance of freshness.


Thus, the factory contracts the city’s health bureau to certify that every single batch of its egg yolks is safe for consumption.

Over the past few years, food health bureaucrats have been weeding out inferior manufacturers.

For example, a regulation implemented from September last year prohibits the sale of mooncakes produced without Quality Safety certification.

The company believes its sales of OEM moon cakes to hotels and restaurants will rise as a result.

Guests who saw China Angel's new factory will be hard pressed to find a moon cake producer
safer than this.

Read how China Angel’s expansion plan is aligned to regulations:
CHINA ANGEL: FY '07 sales up 88%; expects to benefit from tougher rules

Snapshots at China Angel's pastry retail outlets in Shenzhen

(Photos taken by Sim Kih)

The trend is for pastry retail outlets to feature dining space.
At Rmb 3.50 for a bun to Rmb 7 for a slice of mousse cake, Angel's pastries are mouth watering yet affordable.
Third-party drinks are available for the convenience of dine-in customers.
3 bakers and 7 sales promoters staff each of Angel's 31 pastry outlets 6am-12am daily on 2 shifts.

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