China Tracker - Details for Agfeed Industries (FEED)

 Agfeed Industries
 Analyst Coverage
2011-05-06Rodman & RenshawReiterationOutperform$4.00
 

While the closure of eight legacy farms is necessary to improve the overall profitability of AgFeed's hog operations in China and is likely to have a negative impact on the company's production numbers and financial performance in the 1H11, we continue to believe that AgFeed remains one of the most attractive long-term stories in the agriculture space. Consequently, we are maintaining our Market Outperform rating albeit with a lowered price target of $4.

2011-02-15Rodman & RenshawReiterationOutperform$6.00
 

Agfeed announced yesterday that its Board of Directors appointed John Stadler, formerly an independent director of AgFeed, as the new Chairman and interim President and CEO of AgFeed Industries, Inc. Mr. Stadler takes over from Mr. Songyan Li and Mr. Junhong Xiong, two of the five original founders of Agfeed. Mr. Song, who served as the Chairman of AgFeed since July 2004, will remain with the company as Vice Chairman of AgFeed's hog production business. Mr. Xiong stepped down as President and CEO of AgFeed to focus on his role as the Chairman of AgFeed Animal Nutrition, Inc. (AANI), Agfeed's animal feed business. We remind that AANI has filed an F-1 registration statement with the SEC and is currently awaiting SEC approval for an initial public offering. In addition to the above-mentioned management changes, Mr. Edward Pazdro, AgFeed's interim CFO since November 2010 was confirmed as the permanent CFO of the company.

We believe the transition from founders-managers to professional management with international experience, substantial industry expertise and financial savvy is an important step in building a sustainable and profitable business and increasing shareholder value. Moreover, we believe Mr. Stadler's substantial senior management experience in hog production in the U.S. will be highly beneficial to AgFeed as it executes on its growth and operating strategy. Notably, Mr. Stadler's past experience includes working as the President of Premium Standard Foods, a subsidiary of Premium Standard Farms, acquired by Smithfield (SFD, Not Rated), Chairman of the Board and CEO of Pine Ridge Farms, LLC (Private), a fully integrated pork producer located in Iowa, U.S., and board membership of BMI Ag Services, LLC., a U.S. agriculture consulting company. He is also one of the founders of Mariah Foods and a founder and former Chairman of M2P2, a U.S. based pork production company acquired by AgFeed in September 2010.

AgFeed is currently trading at 5x our FY11 fully diluted EPS estimate of $0.49. Given the company's efficiency initiatives, pending completion of western style farms, improving pricing environment for hogs, and the positive impact of M2P2 acquisition, we believe the company's shares warrant higher valuation. We reiterate our Market Outperform/Speculative Risk rating and a price target of $6 based on the shares attaining a P/E level of 12x our FY11 fully diluted EPS estimate. Our current price target does not include the impact of western-style farms under construction in Xinyu and Dahua that will more than double the number of hogs available for sale in China by FY12.

2010-12-02Rodman & RenshawReiterationOutperform$6.00
 

The company has disclosed additional details on M2P2 acquisition in the 8K/A filed on December 1st, 2010. The filing meets company's obligation to disclose M2P2's financial statements following the completion of the acquisition. We are adjusting our model to reflect the newly disclosed information. We are increasing interest expense to $1.8 million for FY10 and $5.1 million for FY11 to reflect higher debt obligations. Meanwhile, M2P2's SG&A expenses for the past periods have proven to be lower than we originally anticipated. We are consequently tuning down the operating expenses for the consolidated entity. We now project 4Q10 and FY11 net income and EPS of $0.9 million or $0.02 per fully diluted share and $27.1 million or $0.49 per fully diluted share, respectively. At the same time we are tweaking our FY12 net income and EPS forecasts upwards to $49.6 million and $1.05, respectively. We note that there is a potential upside to our estimates if hog prices in China remain at the current relatively high levels.

Additional insights into M2P2: Client agreements: According to the filing, M2P2's main customer -we assume, Hormel (HRL, Not Rated) - accounted for 91% and 95% of company's FY09 and 1H10 revenues, respectively. The company is a party to long-term hog procurement agreements with one of its main customers (again, we assume, Hormel) that expire on defined dates in 2012 and 2018 and are automatically extended thereafter unless either party provides the required notice of nonrenewal.

Commodity hedging: M2P2 occasionally utilizes derivative instruments to hedge price risk related to the company's hog sales or grain purchases. Changes in fair value of the derivatives are recognized in net income and gains or losses relating to these derivatives are recorded in net sales and cost of sales, respectively. We recognize there is a significant risk associated with commodity hedging that may have a material effect on the company's future revenues and earnings.

We continue to view AgFeed's valuation as attractive. The shares are currently trading at 5x our FY11 fully diluted EPS estimate of $0.49. We remind that our assigned price target of $6, based on the shares attaining a conservative P/E multiple of 12, does not include the impact of western-style farms under construction in Xinyu and Dahua that will more than double the number of hogs available for sale in China by FY12.

2010-11-10Rodman & RenshawReiterationOutperform$6.00
 

AgFeed posted a 3Q10 miss versus our estimates, primarily due to a $16.8 million (non-cash) impairment charge, a one-time tax charge of $1.3 million relating to the corporate reorganization taken to facilitate the planned animal nutrition carve-out, one-time professional fees and expenses of $1.1 million relating to the M2P2 acquisition, a 13% increase in corn prices compared to 3Q09 and weaker hog sales volume offset by strong feed segment performance and contribution from the M2P2 acquisition. We are reducing our 4Q10 forecasts due to the potentially lingering effects from the summer floods and heat that had negatively impacted hog inventory. While the quarterly results were below our expectations, we believe the company is taking the right strategic steps that will ensure long-term growth and profitability. We are maintaining our revenue and net income FY11 outlook. We are reducing our price target from $7 to $6 based on higher share count. Our 12-month price target is based on the shares attaining a P/E level of 12x our FY11 EPS estimate of $0.50. With over 100% upside from current price levels, we suggest that long-term investors take advantage of the pullback to accumulate positions.

3Q10 Results: The company reported revenues of $53.6 million (~up 18.8% YoY) considerably above our forecast of $37.4 million. The variance from our estimate was a result of $10.3 million contribution to the quarterly results from the M2P2 that we assumed would not contribute significantly to this quarter's results and higher than estimated revenues from the hog segment. The company reported a gross profit of $4.3 million translating into 8.1% gross profit margin compared to $7.6 million gross profit and 16.8% gross margin in the 3Q09. The decrease was attributable primarily to 13.0% increase in corn costs and lower hog selling prices during the quarter compared to the same period last year. The company reported GAAP net loss of $20.6 million or ($0.43) per share. Excluding the effect of a non-cash impairment charge (~ ($0.35) per share) and non-recurring charges amounting to a total of $2.4 million, the company lost ($0.03) per share.

Impairment Charge and Other Non-recurring Charges: A review of the legacy farms in China for goodwill impairment has revealed that while the farms can be operated profitably, they cannot sustain a high enough level of profitability to support the original acquisition values and resulting goodwill. Consequently, the management decided that an intangible asset write down of $16.8 million was necessary. We remind that most of the farms were acquired in 2008 when hog prices were at the historically high levels. Additionally, the company booked two significant non-recurring charges totaling $2.4 million relating to the planned animal nutrition carve-out and professional and consulting fees associated with the acquisition of M2P2.

2010-10-18Rodman & RenshawReiterationOutperform$7.00
 

We are transferring coverage of AgFeed Industries, Inc due to analyst re-assignment. We are maintaining a Market Outperform Rating with a new 12-month price target of $7. We believe the Street has not fully appreciated the vast opportunity associated with the commercialization and modernization of pork production in China. AgFeed addresses the inefficiencies in hog farming in China through better genetics, breeding, nutrition, introduction of western data-based farm management practices and the construction of western style farms. Although we acknowledge that the operating environment for hog producers has been challenging, we are beginning to observe some tightening in the supply that combined with seasonally stronger demand for pork should support the prices. We are adjusting the model and our forecasts to reflect the impact of the recent M2P2 acquisition, the contribution of western style farms in Dahua and Xinyu. We are also incorporating the efficiency gains from higher sow productivity and better feed to meat conversion rates and fine-tuning hog and feed prices in line with the current pricing trends in China. We are introducing new revenue and net income estimates of $220.5 million and $0.8 million in FY10, $419.1 million and $28.0 million in FY11, and $650.0 million and $49.0 million in FY12 translating into fully diluted EPS of $0.02, $0.59, $1.03, respectively.

We assign AgFeed a price target of $7 based on the shares attaining a P/E level of 12x our FY11 EPS estimate of $0.59. The company is trading at a discount to its peers on a number of metrics, including forward P/E, EV/EBITDA and P/BV. We value the company at a slight premium to the U.S-listed peer group to reflect long-term efficiency gains through better genetics and adoption of western production practices that differentiate the company from the vast majority of protein producers in China. We also note that out price target does not include the impact of additional production from the five western style farms being constructed in Dahua and Xinyu.

2010-08-17Rodman & RenshawReiterationOutperform$3.60
 

AgFeed Industries announced the definitive terms to acquire 100% interest in M2P2 LLC, based in Ames, Iowa. AgFeed will pay an aggregate amount of $26 million, subject to adjustment based on the book value of M2P2’s assets, with approximately 49% paid in cash and 12% In AgFeed common stock, with the balance in the form of a 10-year seller note. The final terms were somewhat different from the originally announced terms, of which 80% of the purchase price would be paid in cash and 20% would be in AgFeed common stock, and the total consideration was estimated to be $16 million. The transaction is expected to close later this month. AgFeed also announced a share buyback program for up to $5 million of its common stock. The company may repurchase the shares in open market or through private negotiated transactions. No timing information was announced. We are maintaining our Market Outperform rating and $3.6 price target on the shares of AgFeed. Our price target is based on the shares trading at 12x our expected FY2011 EPS of $0.30.

2010-08-12Rodman & RenshawReiterationOutperform$3.60
 

We have tweaked our model and revised our financial projections. For full year 2010, we now estimate total revenue will reach $200.8 million, gross profit will reach $21.9 million, and non-GAAP net income will be a loss of $1.0 million, or a loss of $0.02 non-GAAP EPS. Looking forward to 2011, we expect AgFeed will record total revenue of $324.8 million, gross profit of $46.3 million, and non-GAAP net income of $13.6 million, translating to $0.30 of non-GAAP EPS. We maintain our Market Outperform rating but lower our 12-month price target to $3.6 on the shares of AgFeed.

2010-07-20Rodman & RenshawReiterationOutperform$5.00
 

We believe the acquisition makes strategic sense for AgFeed, as M2P2's expertise in hog production will be beneficial for AgFeed to transition into a western-style commercial hog producer and achieve long term growth on an international stage. From a balance sheet perspective, we believe AgFeed should have sufficient cash to pay for the $12.8 million cash portion of the price tag since the company had $28.6 million cash at the end of March 2010 and 2Q10 operating cash flow is expected to be positive. Assuming a stock price of $3.02 (today's intraday price) at the close of the acquisition, the company will need to issue approximately 1.06 million shares of common stock. We are maintaining our Market Outperform rating and $5 price target on the shares of AgFeed. Our price target is based on the shares trading at 12x our expected FY 2011 EPS of $0.38. As we await further details of the acquisition, we have not factored the acquisition into our financial projection.

2010-05-25Rodman & RenshawReiterationOutperform$5.00
2010-04-15Rodman & RenshawReiterationOutperform$7.00
2010-02-09Rodman & RenshawReiterationOutperform$7.00
FEED
Food
SCORE
-1
UNDER REVIEW
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Current Price:  n/a
F10k Day (2007-01-05): -100.00%$2.00
2009 Close: -100.00%$5.00
2010 Close: -100.00%$2.94
2011 Close: -100.00%$0.39
High (2012-09-11): -100.00%$0.80
Low (2012-05-30): -100.00%$0.01
Exchange:
Market Capitalization: n/a
Total Shares: 57.99 mill
Float: n/a
Avg Volume: 900.70 k
Short Interest: 2.06 mill
Short Ratio: 4.19%2.3 d
Last Quarter: 2011-03-31
Revenue (MRQ): 92.99 mill
Net Income (MRQ): -1.55 mill
Op. Cash Flow (MRQ): -5.70 mill
all financial data provided without warranty