Asian Citrus' profits to take a 24% dive
Agribusiness isn't going too well.
According to Maybank Kim Eng, AC expects its 1HFY6/13 sales and core net profit to drop YoY, though the magnitude of the decline was not mentioned.
The profit alert did not come as a surprise to the research firm, as it had already announced weak winter crop trading updates owing to unfavorable weather and negative impact brought by its replanting program.
In all, sales of winter oranges were 15% short of our projections, implying 8%/5% downside risk to our original total orange sales/total sales projections for FY6/13F.
Here's more from Maybank Kim Eng:
1HFY6/13 preview. We forecast a 1HFY6/13 core net profit decline of 24% YoY as a result of an 11% YoY revenue drop. We project a 2.6ppt YoY GPM contraction for the same period given the ASP pressure at both its orange plantation and processed fruit units.
We believe that OPEX ratios will inevitably increase YoY amid weak sales. Note that the ASP of processed fruit concentrates plummeted in 2HFY6/12 as a result of destocking by its Thai and Philippines peers, which led to a tough base in 1HFY6/13.
On a separate note, we expect headline net profit to drop more rapidly than the core net profit given the much lower fair value gains on biological assets to be booked in 1HFY6/13.
Better outlook in 2HFY6/13 though. Despite a weak 1HFY6/13, we reckon there are several positive catalysts for the stock, including: i) prices of tropical juice concentrates have stabilised, rebounding slightly since Nov 2012; ii) the new BPG production plant is expected to commence operations after Chinese New Year, which should boost its processing capacity by 67%; iii) improving domestic consumption could see negotiated ASPs of its summer oranges rise; iv) 2HFY6/13 would have a more favourable comparison base for its processed fruit unit.