CITICS*SECTOR RESEARCH*CITICS-Monthly_Tracker_for_Agriculture_Sector_Nov_2008

Dear all,
Attached please find the November monthly tracker takeaway for the agriculture sector entitled "Sector Profits Pick Back up, Increased Beneficial Policies" by Mao Changqing.
Investment Highlights
 
        Growth of 3Q08 revenue for the sector begins to slow and net profit declines. In 1-3Q08, the agriculture sector posted revenue up 30.48% YoY, growth rate increased by 13 percentage points; net profit up 37% lower by 28 percentage points YoY; and gross margin was 24.8%, lower by 2.41 percentage points YoY. 3Q08 revenue growth rate begins to slow by 16%, lower by 10 percentage points YoY, and net profit rate declined by 16%; growth rate down by 40 percentage points YoY.
        Falling prices for some agricultural products account for companies' cost pressure releases and differentiated gross margins. From the second half of this year, the agricultural products' prices began to decline, but cost of the sector still increased by 33% YoY. Segments such as apple juice, tomato sauce and animal healthcare's gross margin maintain on a high level, but companies in the segments such as feeding, common aquiculture and wood processing sub-sector still suffered from a low gross margin.
        Business climate for some segments is still on a high level, and good policy will bring opportunities on agriculture related sectors. Business climate for tomato paste, aquaculture and animal healthcare sector account for high price and stable demand. And a significant impact on the agriculture-related sectors will be made due to the Third Plenary Session of Seventeenth Central Committee. Investment opportunities for agriculture related sectors still exist.
        Sectoral rating and stock recommendation: Reiterate the sectoral rating of "Outperform" as well as the "Outperform" sectoral rating on segments such as animal healthcare products and tomato sauce. We reiterate the "Buy" rating on China Animal Husbandry (600195), Chalkis (000972) and the "Overweight" rating on Heilongjiang Agriculture co. (600598), Jinyu Group (600201), Tiankang (002100), Homey (600467), Tunhe (600737), New Hope (000876) and etc.
        Risk factor: abnormal climate; animal disease; upstream, middle and down stream of animal husbandry, aquaculture, livestock and poultry breeding industry were burdened by the melamine event.
 
Should you have any query, please feel free to contact your account managers.