Yamada

Yamada: UOB Kay Hian downgrades to Hold from Buy with $0.136 TP. House expect Yamada to face headwinds going into FY13 as the group has to cope with lower ASPs, higher costs and government disincentives on the group’s harvesting of the Eucalyptus plantations. According to management, market prices for shiitake mushrooms have moderated to approximately Rmb6.30/kg from Rmb6.75/kg in FY12 as consumers’ preference have shifted from premium shiitake mushrooms to cheaper vegetables. Costs of the synthetic logs have also increased 10-15% annually, in line with higher cost of raw materials. Therefore, expect to see a compression of gross profit margins from 37.6% in FY12 to 30% in FY13. Additionally, Yamada did not pay out any dividends for FY12, as mgt wanted to conserve cash for a new plant in Fuzhou and as well as the unexpected payment of Rmb40m for the synthetic logs since they are unable to harvest the trees due to regulations. This is despite a 20% payout ratio being recommended in the prospectus during listing. Technically, the stock may hold above $0.11/0.12 for further upside. A potential resistance could be seen at $0.155