Pine Agritech (S$0.255) - Negatives priced in The moderation in the pace of store growth at its SOS master distributor, Shenji, is expected to reduce Pine’s SOS sales. Pine is expected to move to consignment sales, utilising supermarket distribution channels. We expect the decline in SOS sales to compress Pine’s margins, as SOS is its key profit contributor with margins of 60+%. Adding to the margin pressure would be aggressive marketing for new products and soaring soybean prices. As a result, we have lowered our FY07-09 EPS estimates by 4-29%, and reduced our target price to S$0.27 from S$0.39, still based on 10x CY09 P/E. That said, the negatives appear to have been priced in as the stock price has plummeted 42% in recent weeks. Hence, we upgrade our rating to Neutral from Underperform.
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