Sinofert (297, $6.10) 12M Target $8.0 BUY

Junjie zhang – junjie zhang@guoco.com (86 755) 8209 2443

Event: Sinofert's share price went up 6% yesterday or 10% in three trading days.

• Executive director Mr. Yang Hongwei recently said the company's sales revenue and earnings are likely to grow more than 20% yoy in 2008 despite a decrease in potash fertilizer import. The company also plans to obtain a listing status in China through the issue of A-shares.
• In our view, the management's earnings forecast is too conservative. Sinofert earned $1,286mn in 2007 before adjustment of change in fair value of derivative component of convertible notes. By the end of 2007, the company has 2.0mn tonnes inventory of potash fertilizers. Current selling price of potash fertilizers is over RMB3,000 per tonne against the import price of RMB2,100 per tonne. Potential trading profit on existing inventory is enormous.
• The parent company of Sinofert bought a total of 44.12mn shares from Apr il 22 to May 5 at a consideration of $251.1mn or $5.69 per share, lifting its shareholding in Sinofert from 71.31% to 71.94%. Obviously, the major shareholder is optimistic about the company's earnings prospects in the long run.
• Asset injection from the parent company is likely to continue. Sinofert has bought 18.5% stake in Qinghai Salt Lake Potash Company (QSLP) in 2007 and is planning to acquire 23.5% stake in Qinghai Industrail Group, the parent company of QSLP, in the near future.
• We maintain our EPS forecast at $0.32 in 2008 and $0.42 in 2009, up 50% and 31% yoy respectively. This translates into a forward PER of 19.1x in 2008 and 14.5x in 2009 with two-year EPS CAGR of 40% from 2007 to 2009. Valuation is cheap in our view.
• Maintain BUY on Sinofert with a 12-month target price of $8.0 based on 25x 2008 earnings.

Pacific Basin (2343, $14.54) 6M Target $19.0 BUY

Kevin Yim –kevin.yim@guoco.com (852) 2218 2861

Event: Pacific Basin raised $2.1bn through share placement at $13.52 per share.

• Pacific Basin announced last night to place 158.6mn new shares, representing 9.1% of the enlarged issue share capital, at $13.52 each to raise $2.1bn. The placing price is 7% below last closing price.
• According to company, the proceeds will be used to acquire Roll-on Roll-off vessels and invest in maritime infrastructure business such as tugs and ports, when opportunity comes.
• As at end-07, Pacific Basin sits with cash of US$650mn with very low net debt-to-equity ratio of 1%. Based on current financial position, there is no urgency for the company to raise funds, in our view. Immediately after the placement, Pacific Basin will compile cash of approximately US$1bn that give it an even stronger balance sheet for future expansion.
• Stepping into new segments could decrease Pacific Basin's reliance on handysize business and diversify company's earnings during potential downtrend of dry bulk cycle from 2H09 onwards.
• Dry Bulk market has recovered strongly with Baltic Dry Index (BDI) up 82% from the trough of 5,615 in late January and only 7% below the all-time peak of 11,039. We maintain our 2008 average BDI forecast of 8,500, 20% higher than that of 2007's 7,070 (2008 ytd average: 7,717).
• The share placement may put near-term pressure on share price. However, we believe any correction in share price is a good buying opportunity.
• Taking into account the dilution from placement, we estimate a 24% EPS growth for 2008. Pacific Basin is currently trading at 7.1x PER and 8% dividend yield that we think is very attractive. Reiterate BUY with unchanged target price of $19.0, representing 9x 2008 PER.