Fu Ji Food And Catering Services

Kaufen Ziel H$ 25.5 Stop L H$ 16 sehr starker Zuwachs, sehr stark unterbewertet Robust growth reported. Fu Ji Food reported 46% yoy sales growth and 50% yoy earnings growth for Q3 FY07. Third quarter EPS grew 69% yoy. The institutional catering and school catering business help expand customer base. Despite Fu Ji Food’s leading position, it currently possesses single digit market share. We see huge growth potential for the company. Production capacity expanded by 86% yoy to 520,000 sets of meals per day which should boost further earnings growth. Profitable. Fu Ji Food is profitable with exceptionally high net margin of 31% in Q3 FY07 versus 10% peer average. Two reasons for such high margin: 1) Shared resources between restaurant and catering segments to minimize food wastage; 2) economies of scale with large capacity. We expect profit margin to remain at least stable in the coming two years consider stable food costs and efficient operation model. High quality. Fu Ji Food stresses the importance of food safety and applies strict food processing standards and stick to ISO14000. The company also hires an international inspection firm to ensure on-going food hygiene and safety. Both practices minimize reputation risk caused by food accidents. Beijing Olympics serves as catalyst. The number of officers during 2008 Beijing Olympic is expected to reach 250k with the demand for 13mn sets of meal. The group also disclosed in the result announcement that it will sign catering service contracts for the 2008 Beijing Olympics Game, making the Group an official food caterer for the Game. Attractive valuation. The stock is currently trading at 19.5x FY08 consensus PER with 48% FY08 EPS growth, which is deeply undervalued. We maintain a BUY on the counter with target price of $25.5, representing 0.52x PEG and 24.8x FY08 PER. Stop loss is set at $16.0.