3Q/9M08 results were in line with our expectations.
Point: Revenue for 9M surged by 63% y-o-y to RMB588.8m from RMB361.2m a
year ago on higher ASPs and higher volumes for its potato starch. This was
largely due to its newly added 80,000 tpa capacities at its Sui Ling,
Heilongjiang and Ahlihe, Inner Mongolia plants (40,000 tpa each). Gross
profit rose by 57% to RMB268.3m. Due to higher costs of potatoes in this
harvest season (Aug – Nov'07) at RMB450/mt vis-à-vis the previous season's
average cost of RMB320/mt, gross margins were lower by 1.8ppt to 45.6%,
from 47.4% a year ago. However, net profit for 9M still ended at RMB174.7m,
up by 67% from RMB104.8m as a result of its lower effective tax rate.
Relevance: The Group also announced that construction of the production
lines for its two new products – potato fibre and potato protein – has
progressed well and is expected to commence production in 3QFY09. We have
adjusted our FY09F forecasts upwards by about 12.6% to take into account:
(i) contributions from potato fibre and potato protein; and (ii) higher
ASPs of its potato starch. However, in line with the general de-rating of
the market in recent weeks, we are pegging our valuations to a more
conservative 8x on FY09F earnings (instead of 12x previously). This is at
the lower end of the counter's historical trading band. Consequently, our
TP is revised to S$0.85.
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