China XLX Fertiliser - Weakness seen in 1Q09

Higher cost of old inventory will add pressure to short-term margins. In short, ASPs have fallen faster than the rate where old inventory can be cleared. However, this problem is isolated in 1Q09. From a wider group perspective, the impact is muted as urea margins are rising. Urea has a higher contribution to the group revenues and is benefiting from softening raw material prices and the lifting of a price cap. We cut FY09-10 estimates 15% -29% on lower ASP and margin assumptions. Target price reduced to S$0.34 from S$0.39, as we have used a lower P/E target of 4.3x on CY10 earnings (6.2x previously CY09). Maintained Neutral.

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