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CIMB downgrades China XLX Fertiliser (B9R.SG) to Underperform from Outperform, lowers target to $0.45 from $0.71, after cutting its FY10-FY12 earnings estimates by 13.8%-39% to reflect persistent cost pressures.
“The amount of additional capacity from various urea players will limit ASP increases, we believe, while coming production could be affected by electricity cuts.”
CIMB’s new target price is still set at 7X CY12 P/E, a 50% discount to its peers. “We believe de-rating catalysts will come from:
- deteriorating margins for methanol with the recovery stalling;
- high urea ASPs paradoxically affecting volume sales as most distributors purchase products at low prices, and some are cautious about the high prices; and
- costlier coal inputs.”
Shares are off 3.3% at $0.585.
