Yurun held a conference call this morning as the founder and the Chairman, Mr. Zhu Yicai resigned and Mr. Yu Zhangli and Mr. Li Shibao are appointed as the new Chairman and the new CEO, respectively. Mr. Zhu reaffirmed that he is not leaving the Company and will continue to provide advice to the new management on the Company’s business development.
We do not think this is a good timing for Mr. Zhu to resign and recovery seems to be slow. We are in doubt whether the new management can lead the Company’s business operation to resume stable growth. In addition, the Company is at risk to miss full year slaughtering volume growth guidance of 5% in 2012 and 1H12 results could be weaker than expected previously. However, core net profit forecasts for 2012-2013 are not revised much as we revised down tax expense. We expect core EPS to be HK$0.438, HK$0.965 and HK$1.358 for 2012-2014, respectively.
The sudden resignation of the Chairman creates further uncertainties to the Company’s operation. Also, Mr. Zhu may not be able to increase his stake in the Company immediately. Therefore, we reiterate “NEUTRAL” on the Company but cut TP to HK$7.0. The new TP represents 16.0x 2012 PER, 7.3x 2013 PER and 5.2x 2014 PER, based on core EPS and 0.7x 2012 PBR. Investors are advised to invest in Yurun if 1) Management increases stake in the Company substantially; or 2) Huge share buybacks by the Company; or 3) A sharp fall in short selling ratio.