gsg_stock discussion

Stockwatch- Synear Food Hldgs $0.935

Deutsche Bank report 21 August 2006

Preserving the Chinese heritage; Buy dumplings

Initiating with Buy and TP of S$1.08
We are initiating coverage of Synear with a Buy rating. Our target price of S$1.08 implies >25% total return potential from its current price of S$0.86. As a manufacturer of quick-freeze food products, Synear aims to preserve the Chinese heritage by promoting products related to traditional themes. Thanks to its brand equity and strategic location in China, Synear believes that it currently holds at least 15% of the PRC’s market share in similar quick-freeze food products.Valuation still looks cheap to us now.

Steady growth underpinned by robust economic development
Several factors have facilitated the availability of quick-freeze food in second-tier cities. We note strong economic growth and rising affluence among Chinese consumers, together with deeper penetration of supermarkets/hypermarkets and increasing ownership of refrigerators. The food processing industry has become an important force in China's national economy, Euromonitor projects the nation’s frozen food consumption to grow >7% pa.

Net profit expected to grow at CAGR of 23%
Earnings momentum for Synear should be enhanced by its continual marketing efforts, expanding distribution network and production capability. We expect revenue and earnings for FY05-08 to grow by 15% and 23% CAGR, respectively, led by growth in all product segments. The commencement of tax holidays in April 2006 and Synear’s resilient business model will also empower its balance sheet.

Appetizing upside of >25%
Based on the current price of S$0.86, we think Synear looks cheap (implied CY07 PER of 12x) compared with its peers. Our TP of S$1.08 is based on 15x P/E, an average of its peers, which offers 26% upside before dividend yield. Risks to our forecast are mainly rising competition; possibility of epidemic diseases, which affects demand for meat products; and any fluctuations in its raw ingredients cost.

posted by gsg @ 1:26 AM