Daifuku published a report stating that it is recommended to buy Daesung Foods (03999-HK); the latest target price is HK$1.95, which is equivalent to 11.4 times the predicted price-earnings ratio in 2009 or 0.7 times the estimated price-earnings growth rate for the two-year period. It is cheaper than the same industry Yurun Foods (01068-HK) and has a 10% premium over the market price.
According to Daifuku, Dacheng Foods' net cash was sufficient to cover its increased capital expenses (new live chicken farm and processing plant); while KFC's 3-year chicken supply contract brought Dacheng an average annual revenue of RMB 556 million, accounting for 6% of turnover in 2008; in terms of sales volume, the contract also increased Dacheng's chicken sales by 7% compared to 2008. However, Dacheng's establishment of a closer pact with KFC is beneficial to Dacheng's business development.
Daifuku further raised Dacheng's earnings forecasts for 2009 and 2010 by 6% and 5%, respectively, to $22 million and $26 million, which meant that the company's earnings per share had a compound annual growth rate of 17% from 2008 to 2010. It also said that improving market demand will cause chicken prices to rise, which may prompt the bank to continue to raise profit forecasts and valuations.
Taisei Foods rose 0.58% to HK$1.73 yesterday.