Rumours of mass resignations, licence rejection, accounting irregularities and
official investigations have not panned out. Instead, China Sun has been
transparent in its guidance and governance. Further, corn prices have retreated
following the harvest to RMB900/ton now, providing a short term catalyst. We
maintain our BUY call on the stock, but reduce our price target to $0.95 to
reflect a more conservative EPS that includes the exceptional charges.
Our 12 month PO of S$1.26 is based on our DCF valuation, which assumes 12%
WACC and 3% terminal growth.
Risks to our price objective are the following: an unexpected rise in corn prices that affects profit margins; a delay in the ramp-up of the 100,000 ethanol plant; and failure to secure fuel ethanol license in China.
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