For the first three quarters of 2008, the company reported business turnover of Rmb1089mn (+11% yoy), operating profit of Rmb87.29mn (+19.67% yoy), net profit attributable to parent of Rmb59.89mn (-14.85% yoy), and EPS of Rmb0.285.
Average export price of apple juice surged by 52% to 1600 USD/ton during grinding season of 2007-2008, which propelled sales income growth as well as a rise of 5.84ppt (to 26.94% ) in its gross margin. RMB appreciation added losses on exchange, consequently, the company’s financial expense rate has sharply risen by 2.11ppt, and net profit decline was mainly due to an income tax rate of 25% after new Corporate Income Tax Law was implemented.
We project the company’s EPS in 2008-2010E be Rmb0.33, Rmb0.38 and Rmb0.40 respectively, representing P/E ratio of 17x, 15x and 14x separately. Considering negative influences from persistent RMB appreciation and economic recession in Europe & America, we hereby give "Neutral" rating for the counter.
Potential Risks: 1) Continuous drop in export price of apple juice; 2) Product export decline, and 3) Systematic risks of the big-cap.