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Hefei Fengle Seed:Below expectations on corn seed market share losses; reiterate Sell

发布时间:2011-08-02    研究机构:高盛高华证券

Fengle reported 1H11 net profit of Rmb50mn (-39% yoy), below our streetlowestimates and Wind consensus, accounting for 52% of our prior 2011Eestimate and 41% of consensus, vs. c.70% for a typical 1H. Stripping outthe property segment which was disposed in 1Q11, 1H11 revenue rose28% yoy, driven by a doubling in agrochemical sales which more thanoffset a 11% yoy decline in seed sales. The change in sales mix from seeds(50% gross margin) to agrochemicals (6% gross margin) resulted in loweroverall gross margins (-5pp yoy). Management attributed lower seed salesto intensifying competition from foreign corn seeds which we believewould continue to result in market share losses for Fengle.

What to do with the stock。

We cut our 2011E/12E/13E EPS by 21%/18%/17% to reflect lower seed salesand margins due to the change in sales mix, and cut our 12m TP toRmb11.20, based on 2.9X 2011E P/B against 8% average 11E-12E ROE(previous: Rmb14, 3.5X vs. 10%), a lower multiple implying lower returns.

We reiterate Sell on Fengle on further seed market share losses and we are30%-37% below consensus for 11E-13E. Key upside risks are better-thanexpectedrice seed sales and improving agrochemicals profitability.

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