Tuesday, April 04, 2006

Pine Agritech( Kim Eng)

Pine Agritech - Needs time for earnings to catch up We believe PAG's fundamentals remain robust but the share price has exceeded our twice-revised price target and valuation has more than doubled since we initiated coverage in Dec 2005 at less than 8x 2006 earnings. Currently at more than 17x earnings, PAG is the most expensive of the China plays in Singapore, surpassing China Hongxing Sports's 16x PE, its peers' 12x and China H-shares' 15x. Further, the closest upgrade catalyst is still a few months away. We are optimistic on its industrial-grade soy peptide product as the accessible market is much larger than the retail version. But it is still three months away from completing its R&D and probably six months away from the first order. As PAG also needs to market the product first, cashflow positive returns are only expected in late 2H 2006. Downgrade to Hold with fair value of S$1.61.

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