Group announced an 87% increase in 3Q12 earnings of RMB 84.5m on the back of a 75% growth in revenue. Earlier this week, we had raised our earnings estimates by 11% to be the highest on the street and forecasted 3Q to come in at RMB 77m but results have exceeded ours and consensus expectations. This is due to stronger than expected sales and gross margins for its canned food business which is attributed to a good harvest year resulting in lower procurement costs. We raise our sales and gross margin assumptions for its canned food business and trimmed opex. Our earnings forecast for FY12 is now lifted by 9% to RMB 268m while our FY13-14F earnings have been raised by 5% each respectively. Our TP is raised from S$0.65 to S$0.68, pegged to an unchanged 3x FY13F earnings (in-line with its historical mean).

What exceeded our expectations? 1) Higher gross margins for domestic and export canned food business ' a good harvest year has lowered procurement costs. This is particularly so for its asparagus segment which saw gross margins at a four-year high of 35% for the quarter. Overall, domestic canned food margins were at a record 47% vs our forecast of 40%, 2) Higher sales of domestic canned foods, partially due to higher ASPs, and 3) Lower opex and finance costs.

Changes to our assumptions. 1) Raised our gross margin assumptions for its domestic canned food segment from 40% to 43% in line with 9M12. 2) Raised our domestic canned food sales estimates for 2012 by 20% to RMB 110m (3Q12: RMB 32m, 9M12: RMB 85m), 3) Marginally raised our beverage sales estimates by 3% to RMB 888m, and 4) Reduced opex and forex costs.

Expect market upgrades to be a catalyst to stock price. We are currently the highest on the street with our 2012 estimates 24% above market consensus. In light of the strong 3Q12, we expect subsequent upgrades by analysts to be a catalyst to stock price.

 

Source: OSK