CIMB - 12 Nov 2007

What’s on the table

Pine Agritech (S$0.445) - 3QFY07 results - Poor showing by all measures Pine’s 3Q07 net income of Rmb93.0m (-40.4% yoy) was below our estimate and consensus estimate, with 9M07 net profit accounting for 72.6% of our original estimate and 70.6% of consensus’s. Sales slid 23.3% yoy to Rmb365.1m, attributable to poor sales of SPI and SOS, the company's two main products. We expect the momentum to decelerate further in 4Q. Gross margins shrank to 37.9% in 3Q07 from 42.5% in 3Q06 and 48.0% in 2Q07 as a result of rising soybean prices. Taking into account the poor sales momentum, the company’s inability to pass on cost increases and aggressive advertising and promotions, we have cut our FY07-09 EPS estimates by 1-5%. After our earnings downgrade and rolling forward our target basis to CY09, our target price drops from S$0.44 to S$0.39, now based on 10x CY09 P/E (previously 11x CY08, in view of the lack of visibility for new products). Downgrade to Underperform from Neutral.

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