After visiting the meat factories of People's Food in Shandong province, Daiwa Institute of Research has increased its earnings forecast for the pork and chicken processor. The company is forecast to increase earnings by 15 per cent next year to 1.06 billion yuan and by 7.7 per cent in 2005 to 1.47 billion because of the better-than-expected utilisation rate at the Linyi factory and faster-than-expected production at Dezhou near Jinan. Daiwa said: 'The company has undergone a full transformation in almost all aspects of its operations since going public in 2001. This includes scale, efficiency, technology (semi-automated production flow) and even corporate transparency.'' Although the share price has increased by 30 per cent in less than a month, it is not too late to accumulate the stock because of the company's strengthened fundamentals. The company faces two risks: diseases among people, such as Sars, which may affect distribution channels, and animal diseases, such as foot and mouth, which could affect supply. The only controllable factor that could hinder earnings growth is the quality and speed of employee training. Training appears to be at the top of management's agenda. 'We think the risk to investors lies in the potential sale of company shares that were placed with distribution partners, which hold 15.58 per cent of People's Food,'' said Daiwa. The strong pace of expansion and improved investor relations will drive the share price higher. The stock is under-valued and Daiwa estimates it is trading at a full-year 2004 price/earnings growth multiple of 0.2 times and a price/earnings ratio multiple of 5.9 times under its new forecasts. Daiwa raised its six-month target price to S$1.54 (HK$7), implying an upside of 27 per cent on the December 15 price of S$1.21. The counter closed at HK$5.30 on Friday.