Global Diary 2007

[winston]

Not vested. From Phillips:-

Risks
1) It may not be able to secure a stable supply of raw milk with acceptable quality or on acceptable terms;
2) The raw materials like raw milk prices rise largely and then negatively impact on the profitability.

Rating Speculative Buy for the disadvantage on scale

The milk powder market space is wide, and the widening marketing channels will also drive up the revenue growth.

Plus with the advantage on location of its raw milk, we forecast it will realize the revenue/net profit of RMB893/250 million and RMB1,071/318 million in 2010 and 2011 respectively.

The growth rate of profit is respectively 87% and 27%, and the EPS will be RMB0.33 and RMB 0.42.

Regarding the valuation, we take the P/E method for the growth of the dairy industry. Compared to its peers, Global Dairy doesn`t enjoy the advantage of scale, and its other core competences havn`t brought with significant effect, we conservatively give it the P/E with 15X to FY10EPS, the 12-m TP will be HK$5.67, 9% higher than the upper issue price.

The rating is Speculative Buy