$Zixin (42W.SG)$ Phillip Securities reiterate their BUY reco...

Phillip Securities reiterate their BUY recommendation on Zixin with a higher DCF-TP of S$0.056 from S$0.050.

They visited Zixin's factory and plantations in Liancheng County, China, from 19-22 Nov. Investments into food security infrastructure by the government and the company's R&D efforts have driven up the volume and shelf life of fresh sweet potatoes by 160% and 328% respectively in 1H FY25. Sweet potato waste is also now developed into nutritional content of animal feed, with the aim of reducing the import of soybeans. Zixin is working with CITIC Construction to replicate a similar food supply chain in Hainan Island.

They expect a stronger 2H25 performance, driven by higher average selling prices and demand during the harvesting season in Liancheng County, which runs from late Sep to early Jan. Festive sales and increased winter sweet potato consumption are expected to further boost volume growth. They project full-year revenue to benefit from a c.112% YoY surge in fresh sweet potato sales and a c.40% YoY increase in processed product sales during 2H25.

They have increased our FY25 revenue/PATMI forecasts by 6%/12%, driven by rising capacity in processed products and improved margins. Zixin is capitalising on China's growing emphasis on food security, supported by various government initiatives and monetary aid for the sweet potato industry. They expect near-term catalysts to arise from an increased capacity of c.20% in FY25e, improved margins from higher-margin processed products, and the increased usage of cold storage facilities. Longer term growth catalysts include expansion into animal feed ingredients production, and Hainan urban rejuvenation project. Zixin currently holds net cash of RMB136.2mn (S$25mn), 40% of its market capitalization.