China XLX - 4Q results came in below expectation

China XLX reported 37% decline in 4Q08 net profit, which is 28% below our estimate. 4Q08 turnover dropped 14.4% to Rmb464m while net profit dropped 37% to Rmb45.7m. The lower-than-expected 4Q08 results were primarily due to a further decline in ASP during 4Q08. Looking ahead, we believe that further downside risk in urea price is limited as it is close to the the cash cost. For the next two years, we believe that volume growth remains the key driver for China XLX. Earnings for 2010 will be mainly driven by the ramp-up of production of its new plant expected in 2H09. Our analyst, Ken Lee, is travelling this morning. We will revisit our earings model and provide more details after we discuss with the management. For the time being, we maintain our 12-month fair value of S$0.57. China XLX remains the most attractively priced fertliser stock in our universe. We will use weakness to accumulate the stock.

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