China Essence reported 4Q10 net profit surged by 186% to RMB30.1m on the back of 15% growth in revenue to RMB204.3m. Comparing 2H results against 1H, we note that sales of potato starch has done particularly well with ASP bucking the trend. This has resulted in GPM increasing from 31.1% in 2Q to 33.4% in 4Q10. Going forward, the group expects to complete the construction of the 2 new plants in Nenjiang and Zhalantun, and commerce test production in FY11.
The Company is still in negotiations with DBS bank, concerning its loan of RMB342m due 30 June 2010. According to mtgm, there are a number of repayment options, among them an extension of the loan period or a refinancing arrangement. In view of the default risk, the stock is therefore valued at only 2.5x FY11 P/E (Mar YE), based on Bloomberg estimates.
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