Death By Association

The odds were against Pine Agritech, even before it listed.

Return on Investment:

- Association with People’s Food may weigh on sentiment
- Pine Agritech aims to be a major global player in the medium to long term
- Europe might be its next stop

You know things aren’t looking too good when investors are hesitant about subscribing to your shares.

In addition to contending with the slew of impending IPOs fighting for investors’ attention, newly-listed Pine Agritech has another problem on its hands: it seems that potential investors are avoiding the stock, purely because its major shareholder is People’s Food.

Retail investors aren’t too crazy about People’s Food because they don’t think the company is transparent enough.

The soybean producer seems confident of standing on its own though, as company spokesman David Tsoi tells phoneCAST?.

"We are already one of the biggest in China, with an internal estimate of about 40% market share.

"We aim to increase that to within 40 and 50 percent in the next five to ten years."

Tsoi says that target would put Pine Agritech among the major players globally.

But with no fixed long-term customers and orders, what makes him so sure his clients wouldn’t just run off to a cheaper alternative producer?

That’s because their core product of soy protein isolate (SPI) - widely used in food products like coffee creamer, infant formula, sausages and patties - "isn’t a homogeneous product, that people can just get anywhere."

"We work with our customers to customise the product for them," explains Tsoi.

"So it will not be that easy for them to find a substitute for this, since they won’t want to risk their products tasting different."

SPI has no colour, smell or taste but aids in the overall flavouring of the food it is added to.

It is the product of soybean oil, which Pine Agritech extracts from the soybeans it buys.

The company purchases up to 80% of its annual needs during harvest months, so it usually has enough stock to last it through the rest of the year.

Tsoi adds that sales for the whole year are "fairly consistent."

But things could change once Pine Agritech heads into Europe, although they don’t have any concrete plans for that now.

"Currently, all our sales are in China because demand is big enough, but we have interested parties in Europe enquiring about our products," says Tsoi.

He thinks since the European Union (EU) is getting increasingly concerned about the effects of genetically modified food, his products - which come from non-genetically modified soybeans - have the potential to be brought there relatively easily.

Pine Agritech thinks its main challenge now is to "maintain the quality of our products."

Other than that, Tsoi doesn’t see any other causes for concern.

The group will be paying out a dividend of no less than 20% of its profit after tax for the year 2005-2006.TI