BISI International (TP Rp960)

Delayed planting deals blow to sales

What’s New
􀂃 We do not think BISI International will be able to achieve our FY11F sales target, considering that its 9M11 sales volume only met 45% of our full‐year target. This is despite management’s forecast that sales volume would catch up in 4Q11 after the decline in 3Q11.

Our View
􀂃 Sales for 9M11 inched up by a mere 1% y/y to Rp660b, far short of our expectation. We understand this was due to a 41% q/q plunge in sales in 3Q11. According to management, the drastic drop resulted from farmers delaying their planting activities as they waited for the arrival of the rainy season in 4Q11.
􀂃 We slash our FY11F sales by 16% to Rp1.03t and cut our sales volume estimate by 32% on average. Our gross margin assumption is unchanged at 38.5%. As a result, our FY11F net profit assumption is lowered by 25% to Rp147b.

Action & Recommendation
􀂃 In line with the cut to our FY11 forecasts for sales volume and net profit, our TP falls to Rp960 from Rp1,100 previously. As the current share price is near our TP, we reiterate our HOLD recommendation.

Plunge in 3Q11 sales as planting stalls
BISI saw sales in 3Q11 tumble by 41% q/q to Rp158b. This resulted in 9M11 sales recording just 1% y/y growth to Rp660b, far short of our expectation. Almost all products posted lower sales volume growth in the third quarter, with the exception of vegetable seed whose sales increased by 6% q/q. Corn seed, BISI’s main product, registered a dramatic 73% q/q drop in sales volume. This was followed by paddy seed (‐25% q/q), pesticide (‐27% q/q) and fertiliser (‐39% q/q).

BISI’s 9M11 sales volume came in below our expectation, achieving only 45% of our full‐year target. Paddy seed was the worst performer, recording a 92% y/y decline. According to management, the lower sales were due to the short supply of parent paddy seed caused by the long drought during the period. It also said that the decline in 3Q11 sales were due to low
planting activities as farmers held off sowing to wait for the onset of the rainy season in 4Q11. However, management believes that sales volume would recover in 4Q11 in the wake of the rainy season. Sales usually pick up markedly in 4Q as the wet season favors crop cultivation.

On average, in 9M11 the ASP of BISI’s products dipped by 1% y/y, but on a quarterly basis, it grew by 5% q/q during 3Q11. The ASP of corn seed declined by 3% y/y to Rp33,884/kg in 9M11, but on a quarterly basis, it rebounded by 41.5% q/q to Rp44,867/kg. According to management, the lower ASP of corn seed resulted from the company selling more low‐margin seed products. Overall, the ASP recovered in 3Q11 following the launch of new corn seed varieties (BISI 222 and 18) with higher prices.

Lower sales volume estimate; maintain HOLDAlthough management indicated that sales volume would catch up in 4Q11 after the decline in 3Q11, we believe it will be difficult for BISI to meet our FY11 expectation as its 9M11 sales volume only reached 45% our full‐year target. We therefore slash our full‐year sales volume estimate by 32% on average. Essentially, our sales volume estimates are cut by 16% for corn seed to 10,990 tonnes, 16% for vegetable seed to 2,338 tonnes, 86% for paddy seed to 112 tonnes, 8% for pesticide to 8,032 tonnes, and 33% for fertiliser to 894 tonnes. In line with a lower FY11F sales volume, we reduce our sales estimate by 16% to Rp1.03t and net profit by 25% to Rp147b. However, we maintain our FY11F gross margin assumption at 38.5%. The revised forecasts cause our TP to fall to Rp960 from Rp1,100previously. As the stock’s current price is near our TP, we reiterate our HOLD recommendation.

Source: KIM ENG dated 25 November 2011