Jiutian Chemical Group - CGS-CIMB Research 2022-08-11: Widening Profit Spread Drove Record Gross Profit Margin

Jiutian Chemical Group - Widening Profit Spread Drove Record Gross Profit Margin

  • Jiutian Chemical (SGX:C8R)'s 2Q22 net profit of RMB184m (-8% q-o-q, +163% y-o-y) was above expectations, with 1H22 net profit forming 97% of our and 79% of Bloomberg consensus forecasts respectively. The beat was driven by strong methylamine (MA) prices (+104% y-o-y) and lower-than-expected input costs. Dimethylformamide prices (DMF) saw some h-o-h normalisation in 1H22 to RMB14k/tonne.
  • Overall, 2Q22 gross margin improved to a record high of 39.5% (vs. 2Q21: 26.6%) as raw material costs continued trending lower.
  • According to 100ppi.com, DMF prices normalised further to RMB10.5k/tonne in Aug 22 (vs. RMB12.7k as at end-Jun 22); we believe this can be partly attributed to seasonally weaker end-demand amid lower manufacturer output in view of higher summer temperatures. Part of the pricing weakness was also caused by China’s zero-COVID policy, which has temporarily dampened economic growth, in our view.
  • Positively, MA prices still remain elevated based on our channel checks, which should support continued healthy profit spread for Jiutian Chemical.
  • With the business environment likely to remain challenging in 2H22F, we cautiously forecast Jiutian Chemical’s 2H22F net profit to grow 10% y-o-y.
  • We raise our FY22-24F earnings per share (EPS) forecast for Jiutian Chemical by 16-38% on the back of higher methylamine ASP assumptions. Target price for Jiutian Chemical is raised to S$0.18, pegged to 4.8x FY23F P/E (based on a ~20% discount to 5-year historical mean of SGX-listed peer China Sunsine (SGX:QES)).
  • Jiutian Chemical's share price currently trades at an undemanding ~2.6x FY23F P/E. Net cash of RMB792m forms ~80% of Jiutian Chemical’s current market cap, which could also support higher FY22F dividends (we estimate ~11% dividend yield).

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

Kenneth TAN CGS-CIMB Research | ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-11
SGX Stock Analyst Report ADD MAINTAIN ADD 0.18 UP 0.150

Previous report by CGS-CIMB:
2022-02-28 Jiutian Chemical Group - A High-Octane Performance

Relevant links:
Jiutian Chemical Analyst Report,
Jiutian Chemical Target Price,

Jiutian Chemical Share Price History,
Jiutian Chemical Announcements,
Jiutian Chemical Dividends/ Corp Actions,
Jiutian Chemical News Articles


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