Jiutian is the second largest Dimethylformamide (DMF) producer in China, with a total annual capacity of 150,000 tons of DMF and methylamine (MA). Both these chemicals are important ingredients in industries as diverse as consumer goods, petrochemicals, electronics, pharmaceuticals and fertilisers. In addition, it now produces chemicals for fast growing sectors such as batteries that are used in electric vehicles.
Robust selling prices and declining raw material costs. DMF prices traded between RMB 14,500 and RMB 18,500 per tonne in 4Q2021, which is at least 48% higher than our base case of RMB 9,800 for the full-year 2021. Meanwhile, methanol prices, the main raw material used for the production of DMF, have declined almost 50% from the peak in October 2021.
Potentially strong 4Q2021. Jiutian reported 9M2021 PATMI of RMB 217mn, an increase of 147% from 9M2020 PATMI of RMB 88mn. The strong PATMI growth came amidst DMF/Methylamine volume in 3Q2021 that were down 8%/4% YoY due to severe flooding in Henan Province in early July 2021, as well as a scheduled maintenance shutdown for both plants in 3Q2021. Looking into the last quarter of 2021, market prices of DMF have risen between 7% and 37% from Jiutian’s average selling prices in 3Q2021. Together with higher utilisation rates, it is likely that Jiutian will beat our 2021 full year forecast of RMB 290mn core PATMI by at least 20%.
Higher dividend even with impairment. The company may potentially have to recognise a RMB 145mn asset impairment due to a non-trade amount to an associate company (Anyang Jiujiu Chemical Technology) in 4Q2021. However, we note this will be non-cash and will likely not impact Jiutian’s higher potential dividend payout for the full year. If we assume a 30% payout ratio based on the RMB 290mn core net profit, we arrive at a DPS of at least RMB4.7 cents or 1 Sing cents, an implied 12% yield based on the last close price of 8.2 Sing cents.
Trading at 2.6x FY2021F P/E. Jiutian currently trades at 2.6x FY2021F P/E based on our core PATMI forecast of RMB 290mn.
Earnings watch and catalyst. The company will report its 2021 full year earnings in the third week of February 2022. This is likely to be a catalyst given the buoyant spread between DMF prices and methanol.
