(BUY, S$0.225, TP S$0.330)
2Q11 adjusted net profit of RMB59m (+57% YoY; +50% QoQ) was in-line with our RMB60m projection driven by strong revenue growth from powdered and biological drug segments, which benefited from increased meat production as a result of high chicken and pork prices. However, GPM dipped 5ppt to 71% mainly due to introduction of two new taxes. Share price is down 37% YTD, in-line with S-Chips’ recent dismal performances. On the back of uncertain global economic outlook and weak sentiment towards the S-Chips sector, we revise our target multiple down to 5x EV/EBITDA (old: 7x), its historical mean since listing. Nonetheless, we continue to like CAL for its exposure to upstream food production in China, as well as its resilient earnings and cash flow generative characteristic. Maintain BUY with a reduced TP of S$0.33 (old:S$0.42), pegged to 5x blended FY11/FY12 EV/EBITDA.
20% powdered drug revenue growth. Powdered drug grew by 20% to RMB123m driven by higher domestic chicken production following decline in broiler meat import as a result of antidumping duties imposed by China. GPM however dipped by 2ppt to 76% due to introduction of two new taxes – City Construction and Education Supplementary Tax, which amounted to RMB5m.
3 fold jump in biological drug revenue. Biological drug increased to RMB84m (2Q10: RMB29m) as sales of blue ear vaccines jumped nine fold to RMB55m from a low base a year ago, and sales of animal foot and mouth (FMD) vaccines made its maiden contribution of RMB5m. Biological drug GPM however dipped by 17ppt to 65% due to lower ASP for blue ear vaccines in new markets and low utilisation for FMD production facilities, in addition to the
introduction of the two new taxes.
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