CIMB maintains sell on Imaspro but ups target price to 85

Written by The Edge Financial Daily
Thursday, 24 September 2009 11:49

CIMB Research has maintained its sell call on Imaspro Corp Bhd, but nudges up its target price to 85 sen from 78 sen previously.

After a company visit, CIMB Research said that the agrochemicals and pesticides manufacturer is set to meet earnings projection, adding that FY2010 earnings should pick up significantly due to rising demand and the absence of inventory writedowns.

“We are, therefore, keeping our earnings forecasts and our target price basis of 50% discount to our target market P/E (price earnings) of 15 times.

But our target price is raised from 78 sen to 85 sen as we roll our valuation horizon a year forward to CY2011,” CIMB explained.

Despite the higher target price, the stock remained a sell with potential derating catalysts such as weak FY6/2010 results, squeezed margins due to stiff competition and a slow recovery of the agriculture sector. Another major issue is the company’s poor share liquidity.

CIMB Research added that the company’s management expects a 40% plus rebound in FY2010 net profit as it will not need to provide for inventory writedowns and demand for herbicides and insecticides should pick up. This is almost double of CIMB’s forecast of a 20% growth.

“We believe the deviation stems from management’s inclusion of contribution from new products, which we have yet to factor into our earnings, given the regulatory requirements and uncertainty over market acceptance of the new products,” it noted.

On the demand side, management expected sales to improve as most stockists were running low on inventory, said CIMB Research.

“As CPO price is relatively stable and costs are going back to normal, we believe that buying activities will pick up again. In 1QFY6/10, Imaspro is likely to book RM15 million-RM20 million sales or about 17%-23% of our full-year estimate.”

Meanwhile, the management aimed to launch at least four new products in FY2010 with an expectation of about RM2 million-RM3 million added on to its bottom line.

“We understand that the company is seeking approval from the Pesticides Board and will bid for government contracts once this approval is in hand,” said CIMB Research.

One of Imaspro’s existing key insecticide products Envo-cyper has been well-received since its launch in 2007. “The company made a maiden shipment of this product to Indonesia in 1QFY10 and is exploring other markets such as Pakistan,” it said.

Imaspro ended flat at 90 sen yesterday.