Dentons Biochemistry: Optimize Product Growth Steady Rating Buy Target Price 3.45 Yuan

our first comment on Dentons Biochemicals (0809) and give it a "buy" ratingBased on the weighted average cost of capital at 8.6 per cent and the ultimate growth rate of 2.5 per cent, our converted cash flow model resulted in a target price of $3.45 for the stockThe 2008 Price-to-Earnings Ratio, based on the target price, is 10.5 times, and the price-to-earnings ratio is 0.3 timesAs one of China's leading corn sweeteners producers, Dentons Biochemicals has integrated production facilities and a diversified portfolio driven by technology, which is our preferred biochemical stake, Dentons is a producer of downstream corn products including amino acids, corn sweeteners, degenerative starch and polyol chemical products such as ethyleneThe company also produces upstream products such as corn starch, corn protein meal and other corn refining products's 2006 turnover and net profit increased by 16.3% and 7.5% year-on-year to $4,743 million and $501 millionGross margins fell by 1 percentage point from 26% in 2005, as pressure on rising raw materials and energy costs was not easily stressedAmino acids continue to be the main driver of the company's revenue growth, with a turnover of 2.213 billion yuan in 2006, accounting for 46.6% of the total turnoverthe company has in the past offset the upward pressure on costs by increasing the proportion of high value-added productsBenefiting from the rebound in lysine prices and the increase in corn sweeteners and amino acid sales, the Company's net profit in the first half of 2007 increased by 21.7% year-on-year to $230 million, showing that an excellent product portfolio was sufficient to ease the pressure on raw material costs, financial costs and income tax increasesThe ability to optimize products helps to consolidate the potential for steady future revenue growthDentons has an annual corn sweetener capacity of 1.14 million tons, making it one of the three largest producers in the MainlandThe company will continue to increase sales and promotion efforts, as well as expand the market coverage of productsIn addition, the annual production capacity of Dentons Biochemicals will be expanded to 200,000 tons, as the new crystalline glucose plant has fully developed its production capacity in 2007we first commented on Dentons Biochemicals (0809) and gave it a "buy" ratingBased on the weighted average cost of capital at 8.6 per cent and the ultimate growth rate of 2.5 per cent, our converted cash flow model resulted in a target price of $3.45 for the stock The 2008 Price-to-Earnings Ratio, based on the target price, is 10.5 times, and the price-to-earnings ratio is 0.3 times As one of China's leading corn sweeteners producers, Dentons Biochemicals has integrated production facilities and a diversified portfolio driven by technology, which is our preferred biochemical stake , Dentons is a producer of downstream corn products including amino acids, corn sweeteners, degenerative starch and polyol chemical products such as ethylene The company also produces upstream products such as corn starch, corn protein meal and other corn refining products 's 2006 turnover and net profit increased by 16.3% and 7.5% year-on-year to $4,743 million and $501 million Gross margins fell by 1 percentage point from 26% in 2005, as pressure on rising raw materials and energy costs was not easily stressed Amino acids continue to be the main driver of the company's revenue growth, with a turnover of 2.213 billion yuan in 2006, accounting for 46.6% of the total turnover the company has in the past offset the upward pressure on costs by increasing the proportion of high value-added products Benefiting from the rebound in lysine prices and the increase in corn sweeteners and amino acid sales, the Company's net profit in the first half of 2007 increased by 21.7% year-on-year to $230 million, showing that an excellent product portfolio was sufficient to ease the pressure on raw material costs, financial costs and income tax increases The ability to optimize products helps to consolidate the potential for steady future revenue growth Dentons has an annual corn sweetener capacity of 1.14 million tons, making it one of the three largest producers in the Mainland The company will continue to increase sales and promotion efforts, as well as expand the market coverage of products In addition, the annual production capacity of Dentons Biochemicals will be expanded to 200,000 tons, as the new crystalline glucose plant has fully developed its production capacity in 2007 (unknown)