Double sinks development: the wrong killing of swine flu

Guo Shin Securities Huangmao swine Flu has plunged the price of pigs, the largest meat processing enterprises in China double sinks (000895) share price caused a great impact.　　Since April 24, the share price has fallen by 20%. We believe that dual-link development of meat products has a cost-independent pricing capacity, the average price in the first quarter even slightly improved. In addition to the company's April increase in slaughter volume and reserves, we believe that at least the next 1-2 quarters, the development of double sinks gross margin will continue to climb.　　And if the government stores, the development of double sinks can also be subsidized and expand the size of hoarding, the cost of locking low.　　Therefore, we think that the development of the share price of double sinks is now significantly undervalued to maintain the "recommended" rating. "Swine flu" in April at the end of the Mexican outbreak of "swine flu" to domestic farmers confidence also brought greater impact, the end of April, some farmers selling activities led to a sudden collapse of pig prices. In particular, the higher pig prices in north-east China, the last week in April the price chain fell nearly 20%, the national average decline in about 10%, but in early May there will be a rebound. The pig-food ratio, which eased as corn prices fell earlier in the day, has fallen below 6:1 or even 5.5:1. Farmers have been basically at the profit balance point.　　But for downstream deep-processing enterprises, the accelerated decline in pig prices means a further expansion of the profit space.　　On the other hand, the World Health Organization says the name "swine flu" is misleading, and there is no evidence that the current new "swine flu" will spread between pigs or between people and pigs, starting with the use of swine flu since April 30. Meat consumption is recovering from "swine flu". And pork prices have fallen sharply, not only the absolute price back to the normal level of history, and compared to other meat already has a certain price advantage. At the same time, the upturn in retail data for April also shows that the upturn is being transmitted to consumption.　　The future slaughter of pigs, if returned to normal levels, will have at least 65% growth in space. However, on the other hand, the number of live pigs has been on the rise for three consecutive months, while the price of live pigs has continued to fall and slaughter volumes have grown rapidly. This paradox reflects the rise in sow herds in the second half of last year as a result of the multiplication of sow subsidies, which in turn led to an increase in pig stocks.　　As the growth of pig herds will continue for a certain period of time, combined with the next 3-5 months in the off-season pork consumption, pig prices in the short-term rebound space will be limited. Government or organization of the beginning of the national six Ministry of the establishment of the "prevention of pig prices over the Fall Regulation Plan (provisional)", set up a pig price "three-level reaction" mechanism.　　At present, pig prices have entered the Blue Alert area, and some provinces such as Hunan, Hubei has even entered the yellow area. According to the provisions, pig food than 9:1 to 6:1 for green warning area, belong to normal, central and local maintain normal pork reserve scale, mainly used to meet emergency and disaster relief needs; pig food is a blue alert for 6:1 to 5.5:1.Region, the government will release the pig market warning information to the community, four consecutive weeks in the blue area, according to market conditions to increase the necessary central and local frozen meat reserves, and to proceed with the implementation of the two-level response of the preparatory work ; the pig grain ratio reaches 5.5:1 to 5:1, for the yellow alert area, the government will encourage large pork processing enterprises to increase commercial reserves and the scale of deep processing of pork through fiscal discount, while in yellow area for four consecutive weeks, further increase the central government's frozen meat reserves while requiring the main and large coastal cities to increase local frozen meat reserves, and increase local government's living　　Reserves; When the pig food ratio below 5:1, for the Red alert area, the government will increase the central frozen meat reserve scale, according to each can multiply sow (or boar) 100 yuan standard, one-time increase in temporary feeding subsidy. In accordance with the above provisions, from April 24 to May 7 for two consecutive weeks in the blue area, and as of 13th, the market price of pork is still in decline, we estimate 4 weeks of continuous pig food than less than 6:1 of the possibility, the government will start the plan.　　In addition, according to the current stock is still rising and consumption is in the off-season, according to the average monthly decline of 5% in the past 13 months, the rate of June or July pig food than continued to fall below 5.5:1 more likely. We believe that the government will keep the price of pig prices, conducive to long-term and stable development of the industry, but also to help downstream meat companies to stabilize the long-term price of pigs.　　If the future through the financial discount way to operate, on the one hand can help enterprises to expand inventory, low lock costs, on the other hand, can reduce the cost of enterprises.　　The stock price significantly underestimated the reaction of the overseas "pork" concept stocks, since the "swine flu" has been known, such as Smithfield, Tyson, Hormel and other U.S. meat industry giants have a strong rebound in shares, such as Smithfield even in Mexico has a lot of pig farming business. The Chinese market is now reacting far more to the "swine flu" than the US in the center of the vortex.　　We think that for a good company like double sinks, there is no doubt about the mistake of killing. Since the IPO in 1998, net profit has maintained double-digit growth for ten consecutive years, with an annual growth rate of 26% per cent.　　This is still in the context of a large number of related transactions, and the group has grown far faster than the background of the listed companies. The development of double sinks in the current 2009 dynamic earnings ratio of about 23 times times, peg less than 1. The total net profit of the group in 2008 is 1.7 billion yuan (including minority shareholder profit and loss), is nearly one times of stock company. Although asset injection and overall listing have not yet been put on the agenda, but the general direction is clear. In the context of a liquidity-easing economy, the premium given to 10%~20% on the stock price is not overvalued. In addition, since 2008, the group began to significantly restart capacity expansion, the listed company's capacity expansion plan will also be a steady acceleration.　　This will also be a factor in the price of stock. We expect 2009-2011Double sinks of earnings per share (EPS) is 1.46 yuan, 1.83 yuan, 2.36 yuan, we believe that the development of dual-link 2009 dynamic P/E ratio can be given 25-30 times, corresponding to 6-month target price 36.4-43.7 yuan, relative to the current stock price and 10%~30% space, maintain a "recommended" rating.