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Pine Agritech is calling for help. Its SOS sales took another dive. Note how CIMB reduced their tp from $0.44 in Nov last year to $0.12. CIMB report below.
1Q08 net profit of Rmb70.2m (-52.1% yoy) was below our expectations, accounting for 17.4% of our FY08 estimate and 17.9% of consensus. While topline of Rmb442.4m (+9.1% yoy) was in line (27.2% of our FY08 estimate), the large profit miss was triggered by a dive in sales of high-margin SOS.
Sales of SPI, with margins in the low-mid 20s, increased 46.8% yoy to Rmb227.4m on the back of increased exports to Eastern Europe and South-East Asia, stabilising domestic demand, and price hikes. Stronger demand and higher ASPs also led to a 104.1% yoy jump in sales of soybean oil, which has margins below 20%, to Rmb89.3m. Sales of other by-products surged 334% yoy to Rmb44.3m.
Dive in SOS sales led to sharp margin decline. Sales of high-margin SOS, which commands gross margins in excess of 60%, plummeted 67.4% yoy to Rmb64m as a result of a drop in orders from former master distributor, Shenji. Pine previously relied on Shenji for its SOS sales. However, Shenji has reached its store-expansion target, and has reduced its SOS orders since 3Q07. The steep drop in SOS sales accounted for the sharp retreat in gross margins to 32.4% from 47.7% in 1Q07.
Cutting EPS estimates. In light of the poor 1Q08, we have cut our FY08-10 EPS estimates by 32-38%, taking into account higher sales of lower-margin products and the steep fall in SOS sales.
Following our EPS downgrade, we have lowered our price target to $0.12 fr $0.16, still based on 6x CY09 P/E, or a discount to our 8x target for key peer, Celestial target $1.20). Pine's earnings visibility remains poor due to its switch to a consignment sales model and the sharp drop in SOS orders. Maintain Underperform.
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.
CIMB 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, they have lowered their FY07-09 EPS estimates by 4-29%, and reduced their target price to $0.27 from $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, they upgrade their rating to Neutral from Underperform.
I don't really follow penny stocks but its pretty clear that the price is plunging.
Now Pine Agritech is really calling SOS. For help! Pun intended. Haha.
OCBC fropped a bombshell with a tp of $0.30 from $0.44. They said that the worst is yet to come.
Soy Oligo Syrup (SOS) product suffered its first performance disappointment with gross profit diving 44% YoY to RMB66.6m. Management updated that its Master Distributor, Shenji, has finished its expansion plan and has reached its targeted 1,200 shops throughout China. As Shenji enters a phase of consolidation, it has reduced its intake of SOS orders from Pine Agritech to prevent overstocking its stores. OCBC see a possibility that Shenji may not fulfil its side of the bargain to take 5,000 tons of SOS in FY07 and may lose its exclusivity to distribute Pine Agritech's SOS product in FY08.
Pine Agritech will go into 4Q07 and FY08 feeling the full impact of its Convertible Bond costs (abt RMB18m/qtr), TV advert costs (abt RMB30m/qtr) and escalating soy prices. Pine Agritech's full tax burden of 25% (currently 15%) will also come online in FY09. OCBC originally expected new product sales to mitigate cost increases but delays in ramping up new product sales along with declining current product sales have put them on the alert for more near term disappointments.
Pine Agritech warned that sales of soy protein isolates (SPI),one of its 2 main products, has been affected by the sharp increase in soybean costs as well as weaker demand from meat processors due to the recent shortage in supply of live pigs in China. Sales of its other product, a health food - soy oligosaccharide syrup (SOS) - fell on weaker demand from its wholesaler, it said.
Pine's 3Q07 net income of Rmb93.0m (-40.4% yoy) was below CIMB's estimate and consensus estimate, with 9M07 net profit accounting for 72.6% of their original estimate and 70.6% of consensus's. Sales slid 23.3% yoy to Rmb365.1m, attributable to poor sales of SPI and SOS.
CIMB 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, CIMB have cut their FY07-09 EPS estimates by 1-5%. After theirr earnings downgrade and rolling forward their target basis to CY09, their drops from $0.44 to $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.
Of its total revenue, roughly 20% came from SPI sales to People's Food, which is a substantial shareholder through its 36.75% interest in Pine Agritech. As for SOS, sales fell to Rmb104m, down 36% on lower orders from its wholesaler. The company said that SOS sales to its wholesaler, Shenji, are likely to go through a period of adjustment.
From 54 to 79 is a long way...man
Anyone know how many percent PFood hold for Pine Agritech?
BNP Paribas has reduced its tp for shares of Pine Agritech to $0.79 from $0.845 and maintained a "buy" rating, forecasting lower FY07 earnings for the soybean-based product maker as it steps up spending to advertise a new product.
so who's pushing this up amidst all the selldown today.
then next week buy in again, Uncle DOW looks weak, tonight will be a good test for next week STI since STI now at record high end..
the Pine bull is not exhausted yet !!! Looks good even for next week !
There's still the weekend's 4D to look forward to... :)
i already placed my sell order at 575 to take profits for a good weekend..
good luck others.
Something is brewing in this counter. Volume up with aggressive buy in. Watch it !
Hi. Is the PE really 6.8? thought this was a stock with PE about 30 over .
Thanks Nostradamus.
our thinking is aligned.
Also, i also feel singaporegal good intention.
Both are equally right.
Wish all of us holds on to our dream.
After the 5-for-1 share split, the volume and liquidity has increased. Agree with ihatcoy that by the time volume is high and the stock is hot, the price would already run up. Better to buy after a correction and volume is low.
Hi singaporegal
Thanks very much for your advice.
My take is this - if a counter has low volumes, it doesn't mean its a bad stock. It just that TA-wise, its not so good.
If you're keen on it, you should invest in it based purely on FA principles. Also, it may mean that you have to hold it for some time before taking profits.
If you're keen on it, you should invest in it based purely on FA principles. Also, it may mean that you have to hold it for some time before taking profits.