Jiutian Chemical Group

Price target: CGS-CIMB “add” 13.5 cents

Record 1QFY2021 seen on higher selling prices

As dimethylformamide (DMF) prices continue on a strong uptrend year to date, CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan estimate that Jiutian Chemical Group will post a “record quarter” in 1QFY2021 ended March.

More specifically, they expect Jiutian’s core net profit for the quarter will see more than a 28-fold surge to RMB78.5 million ($16.1 million).

“Despite 1Q being a seasonally-weaker quarter due to the Chinese New Year, we understand that plant utilisation remained high amid robust orders. We forecast Jiutian achieving revenue of RMB431 million (+7% q-o-q, +116% y-o-y), mainly due to average selling price (ASP) increases,” they write in an April 12 report.

“We also expect a sequential expansion in Jiutian’s profit spread, as ASP hikes in 1Q outpace raw material cost increases,” they add.

According to 100ppi.com, an online platform for commodity prices in China, the asking price for DMF now stands at RMB11,000 per tonne, representing a 120% growth y-o-y and 40% growth year to date.

“We attribute the strength to robust downstream demand, and raw material price increases, and expect DMF prices to remain elevated in 2QFY2021,” say Ong and Tan.

“China’s industrial output rose 35.1% in February and Jiutian notes healthy incoming orders, especially from PU leather, semiconductor, electric vehicle, animal feed and pharma industries. Meanwhile, the price of methanol, a key raw material, has also trended higher by around 15% q-o-q in 1QFY2021”.

With these factors in mind, Ong and Tan have kept their earnings estimates unchanged. They have also maintained “add” on the counter with an unchanged target price of 13.5 cents pegged to 5.7 times FY2022 earnings.

The estimate represents a 20% discount to SGX-listed peer China Sunsine, say the analysts.