[20081126]Agriculture : "Sector Investment Strategy: Suspect of Trading
Pls see attached the full PDF research report, below is a highlight:
Investment Highlights:
¨ Shift of the market focus upstream not fundamentally justifiable. The market is switching its focus upstream (agricultural production and agricultural materials) upon the favorable policy stance and concerns over demand for downstream products. Three hopes have arisen: 1) domestic grain prices may keep inflating; 2) agricultural companies may chance to be involved in the commercialization and industrialization of agricultural production; and 3) arable land transfer may enhance the investment value of agricultural companies with land resources. However, after detailed analysis, we believe: 1) it is hard for the government to keep grain prices rising continuously; 2) it is still uncertain whether agricultural companies will and can participate in the process of agricultural industrialization; and 3) arable land transfer won’t enhance investment value much. Even when there is any benefit, it may be partially or fully offset by companies’ weak fundamentals. Therefore, the shift of the market focus upstream isn’t fundamentally justified and the stock price surge is unlikely to sustain.
¨ A-share: stretched sector valuation and limited stock ideas. Lacking fundamental support, the upstream industry has failed to become more attractive despite the launch of favorable policies. Meanwhile, the changes in domestic and external demand make us cautious about the downstream distribution and processing of agricultural products. Except for Tongwei and Zhangzidao, we see few attractive names based on a tradeoff between current valuation and company fundamentals. The agriculture sector has been trading at a valuation premium over market average since 2007 and at the same valution with the food & beverage sector over the same period, which is largely a policy-driven trading speculation. Given its high exposure to earnings volatilities and corporate governance, as well as a fairly uncertain earnings growth outlook, we believe the agriculture sector may deserve a valuation discount to that of the food & beverage sector.
¨ H-share: deep valuation discounts to be corrected; possible rally expected for those with good fundamentals. Given the extremely low valuations, H-share agricultural stocks have much smaller investment risks than A-share peers. In terms of P/Bs, H-share agricultural stocks have been at a deep discount to the overall market since 2006, mainly traceable to volatile earnings, small market cap, poor liquidity and limited market attention. However, the valuation discount of agricultural stocks over the overall market in terms of P/Bs is hitting a record high while discrepancies in fundamentals have not been priced in. Thus, we believe agricultural stocks with better fundamentals deserve a rally. BUY reaffirmed on China Agriculture, Global Sweetener and Xiwang Sugar.
 agri_081124rp sector investment strategy(us).rar (270.3 KB)
|
发表于 2008-11-26 10:26
|