4Q21F likely a blowout quarter
? Favourable market conditions boosted DMF prices to a new high in 4Q21, while input costs were helped by China’s curbs on coal prices.
? We expect Jiutian to report a record core net profit of Rmb129m (+127% qoq, +50% yoy) for 4Q21F as profit spread further widens.
? DMF prices could remain elevated in 1H22F; we reiterate Add with a higher TP of S$0.15. Catalysts include higher dividend payout in May.
Favourable market conditions drove prices to record levels in 4Q
Favourable market conditions boosted dimethylformamide (DMF) prices to a new high in 4Q21. While prices tapered slightly to c.Rmb15k-16k/tonne levels in Nov/Dec (post reaching a peak of c.Rmb18k/tonne in Oct due to tight market supply), they remain higher than 3Q21 average of Rmb13.5k/tonne, according to 100ppi.com. In Jan 2022, prices remain firm at c.Rmb16.7k/tonne, given 1) continued strong downstream demand, 2) prebuying ahead of Chinese New Year, and 3) concerns over tighter market supply due to Covid-19 disruptions in some provinces.
Input prices eased
Meanwhile, we note that prices of Jiutian’s key raw materials (methanol, ammonia and coal) started to ease in Nov 2021, following curbs implemented by China to ease its power crisis. According to CEIC data, prices of coal in China stood at Rmb714/tonne (-2% mom, +57% yoy) in Dec 2021, while methanol prices came in at c.Rmb2.6k/tonne (-6% mom, +21% yoy) during the same period. We believe this helped Jiutian with a wider profit spread in 4Q21F; this trend is set to continue going into 1Q22F, as coal prices directly influence the cost of Jiutian’s key raw materials.
4Q21F preview: a blowout quarter spurred by higher ASPs
We believe 4Q21F was the strongest quarter in Jiutian’s operating history, on the back of 1) stronger profit spread from higher ASPs, and 2) optimal utilisation of production capacity. We estimate 4Q21F core net profit at Rmb129m (+127% qoq, +50% yoy), bringing FY21F core net profit to a record Rmb347m (+100% yoy). Jiutian has strong FCF generation and net cash (Rmb184m as of end-1H21), and we believe it can sustain dividends of at least 0.7Scts (20% dividend payout ratio) for FY21, though dividend declaration is likely to happen in May, alongside 1Q22F results announcement (given the need for its China OpCo to first approve and distribute dividends to SG listco in its AGM).
Reiterate Add with higher TP of S$0.15
We believe that DMF prices can remain elevated in 1H22F, and we raise our FY21-23F EPS estimates by 0.4-8.5% accordingly. Reiterate Add at a higher TP of S$0.15, based on 5.7x CY23F P/E (a 20% discount to SGX-listed peer China Sunsine). Potential re-rating catalysts include stronger DMF ASPs, and a higher dividend payout in May. Downside risks include production disruptions and a sharp correction in DMF prices.