China Agri-Industries:Long-Term Value Intact中国粮油控股[00606]   

研究机构：摩根士丹利亚洲 分析师： Lillia ... 撰写日期：2011年01月24日

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    Reiterate Overweight: China Agri announced a profitwarning for FY10 results with a 13% YoY decline. Thiscame in 40% and 37% short of our estimate andconsensus, respectively. The announcement explainedthe decline was mainly from oilseed hedging losses in2H10 (unrealized portion could be reversed in FY11)and margin drop in rice processing due to increasingdomestic sales. We view the impact as short-term andcontinue to believe volume growth from oilseeds,bio-chem and rice processing is the key mid-term valuedriver. We expect crushing margin to recover in 2011 asdomestic soybean oil/meal prices would catch up withinternational soybean prices. Our new price target ofHK$11, based on our DCF model, implies 15x 11E P/E.
    Expect crushing margin to recover in 2011: We thinkthe higher-than-expected earnings decline in 2H10 maycome from 1) decline in crushing margin, especially in4Q10, as domestic final product prices laggedinternational bean prices; 2) unrealized hedging lossesas the company increased soybean purchase in 2H10for the new capacity release in 2011. We still foresee areturn to crushing margin improvement with highersoybean prices on tightening soybean stock-to-use ratio.
    Crushing margin tends to be positively correlated withsoybean prices over a longer time horizon.
    Expansion is still the key theme: We maintain ourview that China Agri will be the growth leader in theindustry, supported by its capacity expansion, and thusgain market shares. While largely maintaining our salesforecasts in 2011-12, we lower our FY11-12 earningsestimates for higher SG&A expenses along with theexpansion of the oilseed and rice businesses andincreasing initial investment in channel building for theconsumable rice business in domestic market.