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| 研究机构：摩根大通 分析师： Jessic ... 撰写日期：2010年10月27日 | 字体[ 大 中 小 ] |
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We assume coverage of China Yurun with an Overweight ratingand a new Dec-11 target price of HK$38.0, which implies upsidepotential of 27.5% from the current share price. We think this is a goodtime to re-visit Yurun. We expect 2010 to be an important year inYurun’s history as the company is likely to turn positive free cash flowfor the first time in five years.
We expect free cash flow to turn positive from 2010 and onwards.
We expect Yurun’s profitable business to generate HK$2.1bn in cashflow from operations in 2010, which is enough to pay for the capexbudget of HK$2bn for this year. Past concerns on potential fund raisingshould be removed from the stock, in our view.
Industry consolidation to benefit Yurun in the long term. Yurun isthe largest hog slaughterer in China and is well-positioned to benefitfrom the consolidation in the Chinese hog slaughtering industry, in ourview. By looking at the pork industry in the U.S., we believe that theconsolidation in China still has a long way to go. The top four hogslaughterers in China accounted for less than 10% of the market in 2009,compared to the U.S. where the top four accounted for 67%.
Positive hog price and stable hog supply outlook to support Yurunshare price in the near term. The average hog price in China in 2H10is running at around 20% higher than that in 1H10. Hog-corn price ratiohas been staying above 6 since July 2010, suggesting hog farmers inChina are profitable, which should bode well for hog supply in the nextsix months.
OW. Dec-11 price target of HK$38.0. For China Yurun, we are lookingfor 35.5% and 27.0% YoY core earnings growth in 2010 and 2011,which is the fastest among our consumer staples coverage. At our newprice target, Yurun would be trading at 2011E P/E of 24.9x on core EPS.
Key risk to our price target is a sudden drop in hog price.
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