Synear – Expensive pork expensive lesson

After Synear announced the FY07 result, market has rewarded it with big sell down and many broker downgrade. Key reason is the result below expectation. We have to admit that buying stock is based on rule of expectation. When company outperform the expectation, share price increases. Otherwise, it is the other way. Imagine that I bought a few lot at well above 2+, you should know what expensive lesson means.

However, faith is not lost yet. I still believe the brand name is superior and the consumer trend. Here are some analyst take. If you have believed them blindly, the result is guaranteed to be disastrous. Have your independent view and judgment. I think many time, stock with cheap valuation should be safer than expensive one. Although, in short term, I expect more fluctuation.

SYNEAR, cimb maintain TRADING SELL with target price $1.14($1.75)
SYNEAR, db maintain BUY with target price $2.19
SYNEAR, ml maintain SELL
SYNEAR, uob maintain BUY with target price $1.74($2.45)

Assessment of full year result:

Revenue +18.9% (4th Q only +1.3%)
4th Q profit actually decreases
Full year EPS RMB 35.5cts -4.3%
Full year cashflow increased strongly from 289,850 to 514,373
Little bank borrowing
Dividend RMB0.0727

The fourth quarter result is why the bearishness. Because the growth trend has some what being broken.

The increase of distribution point and higher selling price was offset by raw material cost, higher selling & distribution cost. Main reasons for higher cost are intensified competition and severe winter which affect the business.

Future expansion plan intact – Building more factories, warehouse to increase production capacity. Future earning depends on the raw material cost to come down, launch of new product, increase of selling price and increase of production capacity. Things should clear up at 3Q. Assume 10% earning growth next year at RMB 39cts. At current price of 0.70, PE is 8.9 only. HOLD. Buy on weakness.