• 4Q09 net earnings up 41% y-o-y to RMB49m, within expectations
• Blue-ear vaccine ready for sale, contributing 22% to net profit for FY10
• FY10F-11F cut by 18% and 7% respectively as HFM vaccine sales delayed to mid 2010
• Maintain Buy, TP cut to S$0.33

4Q09 results were in line. China Animal Healthcare’s (CAH) 4Q09 net profit rose 41% y-o-y to RMB49m, on the back of a 36% growth in revenue. On the full year basis, FY09 net profit increased 14% to RMB158m, on a 14% rise in revenue. Revenue growth was mainly attributable to the powdered form drugs and swine-fever vaccines, while gross margins improved across the board benefiting from cheaper raw materials.

Blue-ear vaccine in operation. CAH announced it has cleared all regulatory procedures for the Blue-ear vaccine and will be tendering for the Feb 2010 official bidding exercise. We expect Blue-ear vaccine sales to contribute
20% and 22% of the company’s total revenue and net profit in 2010.

HFM vaccine further delayed to mid 2010. CAH has obtained GMP Certification, and is now in the midst of completing production of the first batch of the HFM vaccine for submission to China’s Ministry of Agriculture for evaluation. CAH expects to obtain the required product code for sales of the vaccine around mid 2010. That means the HFM vaccine will
miss the Feb 2010 bidding season and will only be able to take part in the Aug 2010 bidding season.

Maintain Buy, TP S$0.33, still based on 12x FY10 P/E. We cut our earnings estimates by 18% and 7% for FY10 and FY11, respectively, to factor in the further delay of the HFM vaccine. CAH, backed by 31% earnings CAGR (FY09
–11F), is trading at an attractive 8.6x FY10 P/E, compared to its China peers trading at an average of 25x FY10 P/E.