Jiutian Chemical - UOB Kay Hian 2022-05-11: 1Q22 Achieved High ASPs On Limited Industry Supply

JIUTIAN CHEMICAL GROUP LIMITED (SGX:C8R)

Jiutian Chemical - 1Q22 Achieved High ASPs On Limited Industry Supply

Jiutian Chemical’s 1Q22 strong net profit of RMB201.1m (+122.7% y-o-y) came from higher revenue of RMB772.3m (+75.8% y-o-y), as ASPs for DMF and MA remained elevated.
The industry supply shortage is expected to keep feedstock ASPs high for 2022 and 2023, which would lead to positive operating leverage and solid free cashflow generation for Jiutian Chemical.

Maintain BUY with a higher target price after raising our forward assumptions for product ASPs.

Jiutian Chemical (SGX:C8R)’s 2021 net profit of RMB201.1m (+122.7% y-o-y) was attributable to higher revenue of RMB772.3m (+75.8% y-o-y), which came mainly from elevated product ASPs. Operating cash flow in 1Q22 reversed into positive territory at RMB29.4m (1Q21: negative RMB73.2m), despite a build-up of inventories arising from movement restrictions for delivery of finished goods.
The strong set of results came amid the seasonally slow quarter, as well as lower production volume in Jan 22 due to COVID-19 related restrictions affecting logistics. An interim dividend of 0.75 cents was declared, 114% higher than 0.35 cents in 1Q21.

Prices of dimethylformamide (DMF) and methylamine (MA) spiked to RMB16,166/tonne (+73% y-o-y) and RMB20,055/tonne (+116% y-o-y) respectively. DMF and MA prices have Jiutian Chemical, and we expect 2022 financials to reflect a significant scale-up in gross margin and operating leverage.

We have lifted our 2022-24 revenue estimates for Jiutian Chemical by 8.1% across the 3 believe share price is supported by an estimated 2022F dividend yield of 15.7%.
See
Catalysts:
- Higher-than-expected DMF prices and factory utilisation rates.
- Dividend payment upon reversal of retained losses.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-11

SGX Stock Analyst Report BUY MAINTAIN BUY 0.180 UP 0.168