Peoples Food/ Pine Agri

Peoples Food/ Pine Agri: Halt to be lifted at 9am this morning. General offer for Pine Agri shares + 2Q10 results…
Link Crest makes mandatory conditional offer for all Pine Agri shares at either the cash offer price is $0.2/sh, or one new share of $0.20 in the capital of unlisted State Crest Ltd (subsidiary of Link Crest). PFH, majority sh/h of Pine Agri with 36.8% stake, has undertaken either not to accept the offer, or to take the Share Alternative…

If privatization of Pine Agri goes through, PFH will take 40% stake in State Crest, while Pine Agri’s convertible bond holders will own the remaining 60% stake. In our view, there is no mat’l financial impact on PFH, since there is no monetization of the invmt. But news still positive. PFH earnings have been dragged down in recent quarters due to share of loss from Pine Agri, and this could be a signal that there is still value in Pine Agri, and a turnaround could be underway….

PFH 2Q10 results, better yoy, but weaker qoq.
Revenue +27% yoy to RMB 3.0bn, due to both higher sales volumes (particularly for processed meat pdts) and higher ASP. Gross profit +121% yoy to RMB 272m, net profit +105% yoy to RMB 92.9m, but both were down qoq, due to combination of seasonality and higher selling and distribution costs. Declared interim dividend of RMB 0.055 (~S 1.1cts), more than double last yr…

Growths catalysts to come from: i) continued penetration of rural areas, as mgt continues to focus marketing efforts on this front, ii) continued to make progress in commercial pig farming project, with pdtn to commence next FY, iii) PFH as a sponsor of the Asian Games in Guangzhou in Nov ’10, and will be the exclusive supplier of pork pdts to the event. Stock trades at 9.6x annualized 1H10 PE, vs direct peer, China Yurun at 24.9x PE.