China Agri-Industries Holdings

China Agri To Sell Vs Buy,Cuts Target 9.5% Goldman Sachs downgrades China Agri-Industries to Sell from Buy, trims target to HK$3.35 from HK$3.70, based on 6.6X 2009 P/E after cutting 2008-10 EPS forecasts by 11%-51%; House tips China fuel ethanol price to fall 35% this year, crushing margins to fall; expects gasoline demand will also be weaker due to macro slowdown. "We suggest investors lock in short-term gains before more negative newsflow." Shares down 2.9% at HK$3.98.

China Agri-Industries (606, $5.20) 12M Target $6.30 BUY Event: China Agri-Industries’ (CAI) non-grain fuel ethanol plant in Guangxi has started production. The Guangxi plant has started trial production since December 2007. After months of operation, it has been now producing 100,000 metric tons of fuel ethanol which is sufficient to meet fuel ethanol consumption in Guangxi. CAI is the largest fuel ethanol manufacturer and provider in China. Its business consists of three operating units, namely 100% of COFCO Bio-Energy (Zhaodong) Co., 20% of Jilin Fuel Ethanol Co. and 100% of Guangxi fuel ethanol project. Their production capacities of fuel ethanol are 180,000, 400,000 and 200,000 metric tons per annum respectively. The progress of Guangxi production plant is in line with our forecast. We therefore maintain our EPS forecast fro CAI at $0.42 in 2008 and $0.48 in 2009. Trading at 12.4x 2008 earnings, we believe the valuation of CAI is attractive. Maintain BUY on CAI with a 12- month target price of $6.30 based on 15x 2008 earnings.

China Agri starting a major upward trend starting from $4.50. It develops an upward trend above the 10-day and 50-day moving averages where they are now at $5.12 and $5.20 respectively. Obviously this counter gains strength as the fundamentals improve, which also generates strong buying interest from investment institutions. Thus the share price gains momentum to jump higher. By technical analysis, it poises to test $5.80 shortly. The major upward trend will probably reach $6.00-level.

China Agri-Industries Holdings (0606) China Agri-Industries Holdings (606, $5.22) 12M Target $7.0 Trading BUY China Agri-Industries Holdings (CAIH) is a leading agricultural processor in the PRC. It will benefit from the fast growth in agricultural processing industry. CAIH has already made its new expansion plan of fuel ethanol capacity, in line with China’s fuel ethanol policy to develop non-grain-based fuel ethanol projects. As we expected, margin in oilseed processing segment improved significantly from 1.8% in 1H06 to 4.8% in 1H07 due to industry restructuring and management improvement. Interim net profit of CAIH increased 95% yoy from $315mn (EPS: $0.11) in 1H06 to $615mn (EPS: $0.19) in 1H07 due to a sharp increase in gross margin of oilseed processing segment and brewing materials segment. Corn price recently fell from RMB1,400 to RMB1,200 per ton. The retail prices for gasoline and fuel ethanol price have increased by 8% and 9% respectively with effect from November. The counter is trading at 2007 PER of 15.5x. We reiterate BUY recommendation on CAIH with 12-month target price of $7.0, representing 16.6x 2008 earnings