growth driven by a broadening customer base in the PRC and export markets.Luzhou Bio-Chem is well-positioned to benefit from the

growing demand for sugar substitution play. It has sustainable margins and volume

growth driven by a broadening customer base in the PRC and export markets.

? New customer lends credibility. Luzhou recently succeeded in pre-qualifying for

the supply of HFCS to a renowned carbonated drink manufacturer. The group plans

to supply HFCS through its four existing plants. The securing of this new customer

lent substantial credibility to the quality of Luzhou?s products and aids the group?s

ambitions to grow the export market for corn sweetener.New customer lends credibility. Luzhou recently succeeded in pre-qualifying for

the supply of HFCS to a renowned carbonated drink manufacturer. The group plans

to supply HFCS through its four existing plants. The securing of this new customer

lent substantial credibility to the quality of Luzhou?s products and aids the group?s

ambitions to grow the export market for corn sweetener.

? Capacity expansion to raise ceiling for growth. Expanded manufacturing

capacity in Shandong and the new JV plant in Sichuan are set to increase the

group?s total annual production capacity to 940,000 tonnes in FY07 (+45% yoy).

Average utilisation rate for corn sweetener facilities is estimated to rise to 92% for

FY08 (from 78% in FY06), reflecting our forecasted topline growth to over Rmb2m

in FY08 (from Rmb1.4m in FY06).Capacity expansion to raise ceiling for growth. Expanded manufacturing

capacity in Shandong and the new JV plant in Sichuan are set to increase the

group?s total annual production capacity to 940,000 tonnes in FY07 (+45% yoy).

Average utilisation rate for corn sweetener facilities is estimated to rise to 92% for

FY08 (from 78% in FY06), reflecting our forecasted topline growth to over Rmb2m

in FY08 (from Rmb1.4m in FY06).

? Sustainable growth with higher margins and operating efficiencies. Focus on

the higher margin HFCS and the growing of its export market share (Chinese corn

sweetener exports trade at 5-10% higher ASP to local sales) boosts Luzhou?s

margins. Stable corn costs (77% of COGS), savings from access to its own private

supply of power and water, as well as the strategic location of production facilities,

contribute to keeping costs under tight control.Sustainable growth with higher margins and operating efficiencies. Focus on

the higher margin HFCS and the growing of its export market share (Chinese corn

sweetener exports trade at 5-10% higher ASP to local sales) boosts Luzhou?s

margins. Stable corn costs (77% of COGS), savings from access to its own private

supply of power and water, as well as the strategic location of production facilities,

contribute to keeping costs under tight control.

? Target price of S$1.02. We keep our target price of S$1.02 intact, based on a

blend of P/E (10x CY07) and DCF (12% WACC, 2% terminal growth) valuations.

We like LuzhouTarget price of S$1.02. We keep our target price of S$1.02 intact, based on a

blend of P/E (10x CY07) and DCF (12% WACC, 2% terminal growth) valuations.

We like Luzhou