Liu Miaomiao of PhillipCapital has kept her " buy" call and 6 cents target price for Zixin Group after the company' s plan to issue share options to a group of investors including chairman Liang Chengwang, potentially raising some $26.6 million.

 

From Liu' s perspective, this commitment by Liang and other investors underscores the long-term commitment and confidence in the company&rsquo s growth trajectory.

 

At $26.6 million, it is equivalent to around half the company' s current market cap and will be used to fund Zixin' s expansion plans in Hainan and Singapore.

 

Some 889 million share options with an exercise price of 30 cents each will be issued to be exercised within five years.

 

Liang himself will take up 300 million share options, around a third of the total. His stake will increase to 21.9% of the enlarged share base, assuming he fully exercises his options.

 

According to Liu, Zixin can expect to start generating revenue from its new production in Hainan in FY2027, which will be an addition to its existing presence in Fujian province.

 

In addition, Liu expects revenue for Zixin' s cultivation and supply segment to grow 27% y-o-y, driven by a 25% expansion in cold storage capacity.

 

She notes that sweet potato prices have been on an upward trajectory, up 8.8% year to date, thanks to increasing health consciousness in China and rising popularity among younger consumers.

 

The company has also secured two new orders for animal feed, which gives more traction to a fledgling revenue stream.

 

Meanwhile, processed sweet potato sales will remain the key earnings driver, thanks to new product development such as sweet potato chips and functional products.

 

Liu expects sales to grow 28% y-o-y in the current FY2026 as the new factory commences operations, as well as the launch of Zixin' s own proprietary brands.

 

She expects Zixin' s FY2026 patmi to increase by 16% y-o-y to RMB65.2 million.

 

Meanwhile, it maintains a " robust" balance sheet with net cash of RMB183 million, equivalent to 60% of its market capitalisation.

 

Zixin Group Holdings plans to grant 889 million share options with an exercise price of 3 cents to a group of investors led by executive chairman and CEO Liang Chengwang. The share options can be exercised up till five years from the issue date.

 

In total, if all the options are exercised, these investors will be chipping in up to $26.67 million.

 

Zixin shares closed at 3.2 cents on Sept 18.

 

Liang will be receiving 300 million share options, and other investors include both existing and new shareholders.

 

Thomas Clive Khoo, known to be a key shareholder of Zixin who has been steadily increasing his stake, is not among the investors receiving the options.

 

Khoo last increased his stake on May 27 when he bought 8 million shares at 3.3 cents each from the open market, bringing his stake to nearly 214.6 million shares, or 13.501%.

 

Liang, in contrast, holds just over 242.6 million shares, or 15.27%. If he exercises his entire option of 300 million shares, he will own over 542.6 million shares, equivalent to 21.89% of the company' s enlarged share capital.

 

This arrangement will require the approval of shareholders at an EGM to be called.

 

Zixin Group is a China-based foodstuffs manufacturer, focusing on sweet potato-based products.

 

The company explains that the majority of its cash on hand is held by its China-based entities, and thus channelling funds to its Singapore entities will be subject to the completion of the requisite administrative procedures and require processing time.

 

As such, Zixin is of the view that deploying part of the net proceeds as general capital would strengthen its cash position and its Singapore subsidiaries would be in a better position to pay ongoing expenses such as salary, rental and other professional fees.

 

The additional funds will also give Zixin more flexibility to finance its growth plans via new business opportunities.