Excerpts of latest analyst reports.....

CIMB initiates coverage of ZIWO (41.5 c) with 60-c target

Analyst: Leong Wei Hao

FYE Dec 2007 2008 2009 2010F 2011F

Revenue (Rmb m)

150.6 286.8 360.2 582.9 680.0
Net profit (Rmb m) 27.7 57.7 97.0 153.8 178.0
EPS growth (%) -42 +109 +56 +30 +16
P/E 13.6 6.5 4.2 3.2 2.8
Gross dividend (S c) 2.7 - - 0.6 1.0
Dividend yield (%) 6.9 - - 1.6 2.6

Strong margins and fast-growing markets; initiate with BUY.
We initiate coverage
of Ziwo with a BUY recommendation and target price of S$0.60, based on 4x CY11P/E, in line with its historical average P/E. With demand growing at a rapid pace, only capacity constraints are holding back its growth, we believe.

Ziwo has just become China's only producer of material for making bullet-proof vests. Photo: Internet

As capacity is added and
new products rolled out, we forecast an EPS CAGR of 32.8% for FY08-11. We expect stock catalysts to come from order wins for its bullet-proof materials in the PRC.

Potential capped by capacity constraints. Capacity constraints are arguably Ziwo’s biggest hindrance to growth. Sales volume for Ziwo’s fabric products rocketed from 4,270 tonnes in FY06 to more than 22,300 tonnes in FY08, with the company operating near full capacity.

According to a 2008 report published by China Market
Research Centre, production of terylene filament yarn and SBR in the PRC would increase by 30% and 65% over 2009-12 on the back of heightening demand.

New product development looks exciting. Recognising the need to develop future product leaders, Ziwo has identified two new products, aramid fibre and carbon fibre,for its growth beyond 2011.

Aramid fibre has unique properties which makes it
suitable for aerospace and military applications. Having obtained state-level certifications in Oct 09, the group hopes to secure orders for its bullet-proof vest materials in China by 2Q10.

Strong balance sheet and cash flow. With profits expected to trend up strongly between FY09 and FY11, we forecast strong operating cash flows of Rmb91m-208m and cash balances of Rmb137m-371m for the period. We expect the company to turn from 0.1x net gearing in FY08 to net cash of Rmb346m by FY11.

CHINA ANIMAL HEALTHCARE (24 c) ‘offers excellent value trading at 5.9X CY10 P/E’

CIMB-GK analyst: Gary Ng

FYE Dec 2007 2008 2009 2010F 2011F

Revenue (Rmb m)

274.8 385.1 438.3 896.5 1,125.1
Net profit (Rmb m) 58.9 138.3 157.9 295.4 356.9
EPS growth (%) -32 +135 +14 +87 +21
P/E 32.2 12.9 11.1 5.9 4.9
Gross dividend (S'pore c) 1.4 1.6 0.4 0.8 1.0
Dividend yield (%) 5.8 6.7 1.8 3.4 4.1

CAL posted a strong set of result last evening, in-line with
expectation. FY09 net profit of RMB158m (+14.2% yoy), came in 3%higher than our forecast.

After having posted its strongest quarterly performance in 3Q09 since operations with a turnover of RMB130m, the group performed a notch better in 4Q09 with a record turnover of RMB132.5m.

Edwin Goh, CFO, China Animal Healthcare. NextInsight file photo

Significantly, net profit for the 2H09 amounted to RMB99.7m, representing a 71.2% h-o-h increase over 1H09 and a 32.2% yoy improvement.

Maintain BUY target price of S$0.44, based on target multiple of 9xCY11 P/E to reflect CAL’s strong industry traction and market expansion strategy, but at a 50% discount to industry average due to its relatively smaller size than its PRC peers.

CAL offers excellent
value trading at 5.9x CY10 P/E against its 3-year core earnings CAGR forecast of 36.9%. We see stock catalysts from (1) fast track expansion through M&A of key vaccines producers, (2) dual-listing angle.

Dual listing theme could further catalyse share price even
without stating that valuation is compelling.

Recent story: CHINA ANIMAL HEALTHCARE: Vaccine sales to jump next year

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