Pine Agritech's Q2 net profit soars 88% to 112m yuan

BOOSTED by strong demand for its soya derivatives, Pine Agritech recorded an 88 per cent year-on-year surge in second-quarter net profit to a record 111.8 million yuan (S$22.7 million). This came as revenue jumped 85 per cent to 366.3 million yuan for the three months ended June.

Boosting the bottom line growth were strong growth in demand for both its soy oligosaccharide syrup (SOS) and soy protein isolates (SPI).

Sales of SOS product increased by threefold to 102 million yuan from 32 million yuan in 2Q05. SPI enjoyed an 84 per cent growth to 221.4 million yuan. The higher-margin SOS' share of revenue jumped from 16 per cent in the previous Q2 to 28 per cent while SPI's contribution to topline remained stable at about 60 per cent.

As a result, the company's overall gross profit margin improved by 5 per cent to 39.6 per cent.

Pine Agritech's chief executive officer Li Zhu Ping credited his company's strong performance to greater economies of scale arising from capacity expansion and investment in building 'brand equity'.

The results lifted the company's first-half earnings by 67 per cent to 180 million yuan, while revenue for the six months was up 60 per cent to 590 million yuan.

Pine Agritech proposed an interim dividend of 0.09 yuan per share, which works out to a 30 per cent dividend payout ratio and a one per cent yield.

Meanwhile, in a move to boost liquidity in its shares, Pine Agritech has proposed a one-into-five share split. The restructuring is subject to approval by shareholders and the Singapore Exchange.

In a report yesterday, UOB KayHian Research noted that Pine Agritech had already met 46 per cent of the broking house's full-year earnings estimate.

'Given the minimum orders from the major distributors in 2H06 for SOS product, we forecast the strong growth could be maintain or even beat our forecasts,' the report noted. 'The stock is trading at 14 times FY07 prospective earnings, attractive considering its strong growth prospects.'

UOB KayHian reiterated its buy call on the stock, with target price of $2.80. Kim Eng Research, meanwhile, has raised the stock's price target by 25 cents to $3.25.

'We believe Pine is on the cusp of strong, sustainable earnings growth for the next few years,' Kim Eng analyst Gregory Yap noted. 'While competition is bound to increase, we believe its economies of scale, strong R&D culture and first-mover position are key advantages that will help it maintain growth.'

The stock, listed in May 2005 at 57.5 cents per share, closed unchanged at $2.44 yesterday.