KimEng BISI International Slowing down due to fertilizer shortage

Good FY08 result , but slowing in 4Q08
The company”s net profit soared 165% YoY to Rp398.4b in FY08. The net profit was inline with our expectation. However, performance in 4Q08 was lower compared to 3Q08. Corn seed sales volume declined 39% YoY while lower selling price of vegetable seeds resulted in negative vegetable seed margin of -30%. Overall, total gross margin declined to 43% in 4Q08 from 57% in 3Q08. Management said lower corn seed sales volume was due to seasonality related to peak paddy planting in the period, and shortage of subsidized of fertilizer at end of 2008. Meanwhile, lower vegetable
seed price followed lower commodity price, especially “Kangkung Seed”.

Government still supports the industry
Industry outlook remains robust as the government still supports the industry. Government budgeted Rp1trillion subsidy in FY09 for hybrid corn seeds (8,500mt) and paddy seeds (3,750mt). In addition, the government will compensate shortage of fertilizer subsidy at YE 08 by increasing supply of fertilizer by 5% this year.

New varieties will support the company and industry growth.
The company will release three new variety products this year. One of the new products is “ BISI BIG” corn seeds. Management said BISI BIG has better margin and production yield compared to old products. The new varieties will support the company and industry growth.

Maintain BUY with lowered TP
We maintain BUY as potential growth remains robust, and the government still supports the industry. We lowered TP to Rp2,100 (from Rp2,600), however, as we anticipate fertilizer shortage will cause slower growth compared to our previous assumption. We also see that paddy seed sales volume to be lower than expected, and vegetable seeds price to be lower.