gsg_stock discussion

Stockwatch- Synear Food Hldgs: Deutsche Bank up target price from $1.08 to $1.34

2Q results review; target price
raised and reiterate Buy

A stellar set of 2Q06 results - 16% above expectation; Buy

2Q06 net profit surged 83% yoy to Rmb107m and 1H06 net profit of Rmb215m (+46% yoy), easily beat our forecast by 16%. Tax savings, better-than-expected sales and margins were the key contributors for this quarter. Securing more distributors and the launch of higher-margins new products certainly enhance its growth prospects. Target price is raised from S$1.08 to S$1.34. Reiterate Buy.

20% yoy growth in 2Q06 sales

2Q06 and 1H06 sales grew by a reputable 20% yoy and 15% yoy, respectively. The Dragon Boat Festival in 2Q helped to lift the sales of glutinous rice dumpling products, thus raised the overall group’s gross margin from 32.8% in 1Q06 to 33.1% in 2Q06. Synear also appointed 22 new distributors in 1H06, bringing the number of distributors to 486. It currently offers more than 213 product varieties.

Prospect is better than ever

We are now more positive on Synear, following its success in the SGX-listing and the appointment as the exclusive supplier of quick freeze food products to the Beijing 2008 Olympics Games. Growing number of distributors, more new product launches and improving spending power of Chinese bode well for the group.

Valuation/risk

We have raised our NP estimates by 11-14% on the back of higher margins and better sales growth. Our target price is upgraded from $1.08 to S$1.34 following our earnings revision and alignment with recent sector upgrade (15x to 17x).

Maintain Buy rating as upside potential has increased to 33%. Risks: margin compression from rising ingredient costs and outbreak of epidemic diseases.

posted by gsg @ 12:39 AM