Pine Agritech worth a second look: Kim Eng

KIM ENG believes it's time for a second look at Pine Agritech's stock, with its shareholders due to vote on a stock split on Oct 23.

The proposal, if approved by shareholders, will boost the number of Pine shares outstanding to three billion, from about 600 million now. Its free float would also increase to more than 800 million shares, from just under 200 million currently.

Against such a backdrop, Kim Eng analyst Gregory Yap believes that now is 'a good time to revisit Pine Agritech', a soya bean-based product maker based in China. He has predicted good sales of Pine's soya derivatives this quarter - and reiterated the house's 'buy' recommendation on the stock, with a target price of $3.25. Pine shares last traded at $2.58, down 3 cents yesterday.

He has cited Pine management's recent statements that suggest the firm's two key revenue generators - its soy oligosaccharide syrup (SOS) and soy protein isolates (SPI) businesses - are doing well.

He sees good distribution of Pine's SOS products across China - with some 50 stores to expected to be set up in Beijing by year-end, from about 15 now. Several hundred stores are expected to be set up in Beijing, Shanghai and Guangzhou by end-2007. Pine's management has also said that a national advertising campaign will be launched in H1 2007, to support the expansion of the market for SOS - a health syrup added to drinks to improve digestion.

Mr Yap is also expecting a good quarter for Pine's SPI business. He has cited management as saying that the company's SPI sales volume has remained robust, after it doubled in Q2 to more than 16,000 tonnes, following a price cut in April. SPI is an ingredient sold to food processors to improve food texture and enhance nutritional value of their products.

'With prices stable, we expect revenue contribution to edge up slightly from the second quarter's RMB 221 million (S$44.5 million),' he said.

'More significantly, however, SOS revenue is expected to double from the second quarter to at least RMB 200 million. We estimate the industrial/retail mix should drop to 25:75 in the third quarter, from 50:50. As retail SOS orders fetch higher margins than industrial sales, overall margins should benefit,' he added.

He forecasts Pine's total revenue at 1.6 billion yuan for 2006, with net profit expected at 450 million yuan. For financial year 2005, Pine sold 797.0 million yuan worth of soybean products. Its net profit rang in at 235 million yuan.

'In our view, progress to date has been sufficiently encouraging for us to reiterate our buy recommendation,' Mr Yap said.

'Our target price is set at 18 times 2007 EPS (earnings per share) or $3.25,' he concluded.