Synear Food Holdings - Profit fell off the cliff

4Q08 core net profit collapsed 80% yoy to Rmb12.6m, significantly below our expectations and consensus, representing 24% of our estimate and 16% of consensus. FY08 core net profit to Rmb208.3m formed 84% of our FY08 core net profit estimate and 76% of consensus. 4Q08 core net profit margin collapsed to 2.5% from 13% in 4Q07, on the back of narrower gross margins, increased selling and distribution expenses, and the end of the tax holiday. Revenue fell 15.8% to Rmb501.7m as the 26% sales volume decline to around 54k tonnes more than offset the 15% yoy increase in overall ASP to around Rmb9,200/tonne. FY09-10 core EPS estimates cut 31-35% on account of lower volume and margin expectations. Cash levels dropped to Rmb866m with significant risks of further cash drain. Our target price is cut to S$0.13 from S$0.21, still based on 5x CY10 P/E. Downgrade to Underperform from Neutral.

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