- RE-ITERATE BUY Entry – 0.095 Target – 0.105 Stop Loss – 0.090
- 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.
- Strong 1Q22 results despite a surge in COVID cases. 1Q22 revenue jumped by 76% YoY to RMB772mn. Net profit jumped by 123% YoY to RMB201mn. The sales volumes could be less than last year during the same period as China started to adopt certain restriction measures to contain COVID-19 spreads in March, affecting logistics. However, the average DMF prices ranged from RMB15,000/tonne to RMB16,000/tonne in 1Q22 compared to RMB9,000/tonne to RMB11,000/tonne in 1Q21. The cash and cash equivalents arrived at a record high of RMB1.02bn. Meanwhile, the company proposed an interim dividend of 0.75 SG cents (A dividend yield of 7.7% as of the closing price of S$0.097).
China Dimethylformamide (Industrial Grade) Monthly Average Price (RMB/tonne)
Source: CEIC
- Upbeat near term outlook. Although China could ease its zero-COVID policies, it will continue to adopt draconian measures to avoid another wave of outbreaks. The current supply and demand dynamics will remain status quote as there is no substantial ramp-up in the domestic DMF capacity. The price correction of DMF in April was due mainly to the lockdowns of major cities and the ensuing decline in demand. The production and sales volumes fell correspondingly as well. The latest DMF average price is quoted at RMB12,800/tonne. We believe the downside is limited given raw material prices stay afloat.
- Consensus estimates are positive. We have a fundamental TP of S$0.14 dated back on 17th May 2021. The consensus average TP excluding ours is $0.17. Currently, shares are trading at 2.9x FY2021 P/E (including one-off impairment).
(Source: Bloomberg)