JIUTIAN CHEMICAL GROUP LIMITED (SGX:C8R)
Jiutian Chemical - Expected To Mark Second Consecutive Year Of Record Earnings For 2021
- The ongoing supply constraint for DMF across China and the country’s strong industrial recovery in 2021 have resulted in sustained elevated selling prices. Further aiding gross margin expansion are the relatively stable prices for methanol, Jiutian Chemical (SGX:C8R)’s main raw material.
- We are expecting a solid set of results, scheduled for release in mid-February, and believe the strong financials could boost investors’ confidence in China’s industrial recovery. Maintain BUY call on Jiutian Chemical.
Product ASPs higher than expected in 11M21.
- According to CEIC Data, the average price for dimethylformamide (DMF) recorded a 110% y-o-y spike in 11M21 to RMB12,200/tonne (2020: RMB6,018/tonne). This compares to our initial estimate of RMB7,500/tonne for 2021, and was due to the sustained industrial recovery in China. Further, the industry is facing a DMF supply shortfall on the absence of new manufacturing plants, due to a cessation of approvals by the Chinese government on environmental concerns. We do not see any resolve on the environmental concerns in the near term and are of the view that there will not be any significant increase in DMF supply, which will support prices into 2022 and 2023. Any indication of new supply would require a minimum 9-12 month period for trial and regulatory approvals.
- Ample supply of feedstock translates to a widening spread of gross profitability. Conversely, the ample supply of methanol, the major raw material for DMF production, has kept feedstock prices steady. Average methanol price in 11M21 saw an increase of 15.3%, according to CEIC Data. This implies a widening spread in gross profitability for Jiutian Chemical, and we expect 4Q21 financials to reflect a significant scale-up in gross margin and operating leverage.
Second consecutive record on earnings expected for 2021.
- Posting its first year of record net profit of RMB174m since its IPO (2006) in 2020, we anticipate Jiutian Chemical to mark its second consecutive year of record earnings for 2021 due significantly, with net cash increasing from RMB110m (1.1 cents per share) in 2020 to an estimated RMB433m (4.3 cents per share) in 2021 and RMB788m (8 cents per share) in 2022.
Maintain BUY call on Jiutian Chemical
- We have raised our 2022 and 2023 price assumptions for DMF by 40% and 33.3% to RMB10,500/tonne and RMB10,000/tonne respectively, based on our period that Jiutian Chemical’s product prices have been sustained at. The stock currently trades at 3.5x and 2.4x 2021F and 2022F P/E respectively.
- See
- Catalyst:
- Better-than-expected product mix.
- Higher-than-expected factory utilisation rates.
- Dividend payment upon reversal of retained losses.
Clement Ho
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-01-31
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