1st non-SOE licensed to manufacture animal Hand-Foot-Mouth (HFM) disease vaccine. We expect CAL to grab 20% of China’s HFM vaccine market when its 60%-owned Bewei Antai commences production end 2009, which will boost Group’s earnings by c. 45% from FY10 onwards. The market size of animal HFM vaccine in China is expected to reach RMB1.8-2.0b in FY09.
China was the largest consumer of pork in 2008, consuming over half of global total or > 33kg per capita a year, according to USDA. As one of the biggest manufacturers of powdered animal drugs, CAL is well positioned to ride on the booming demand for meat products, buoyed by rising Chinese residents’ affluence.
Initiating coverage with BUY, Price Target S$0.27, based on 10x FY10 P/E, which is pegged to its closest peer and backed by 45% earnings growth expected in FY10. The counter is now trading at 5.1x FY10 P/E, which is >70% discount to peers’ average.
Risks. The Group’s earnings growth in FY10 is highly dependent on the successful launch of HFM vaccine. Hence, downside risk mainly lies in the ramp-up of the new plant.
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