A strong set of results for 2QFY2022 ended June, coupled with record gross profit margin, puts Jiutian Chemical in good stead in the coming months, say CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen.
In an Aug 11 note, Tan and Ong are maintaining “add” on Jiutian with a raised target price of 18 cents from 17 cents previously. The new target price represents an 87.5% upside for the counter.
The analysts point to “solid” results despite some moderation in average selling price (ASP).
2QFY2022 net profit of RMB184 million ($37.49 million) was up 163% y-o-y. Net profit was above CGS-CIMB’s expectations, with 1HFY2022 net profit forming 97% of its forecasts, and 79% of Bloomberg consensus forecasts.
The beat was driven by strong methylamine (MA) prices, which are up 104% y-o-y, and lower-than-expected input costs. Dimethylformamide prices (DMF) saw some h-o-h normalisation in 1HFY2022 to RMB14,000/tonne on the back of lower export orders from producers, and slowdown in China’s economy. That said, prices remained 40% stronger y-o-y.
Overall, 2QFY2022 gross profit margin improved to a record high of 39.5%, compared to 26.6% the same time last year, as raw material costs continued trending lower, write Tan and Ong.
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DMF prices normalised further to RMB10,500/tonne in August. Tan and Ong partly attribute this 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-19 policy, they add, which has temporarily dampened economic growth.
That said, MA prices still remain elevated, say Tan and Ong, which should support continued healthy profit spread for Jiutian. “With the business environment likely to remain challenging in 2HFY2022, we cautiously forecast Jiutian’s 2HFY2022 net profit to grow 10% y-o-y.”
The analysts raise their FY2022-FY2024 earnings per share (EPS) forecasts by 16%-38% on the back of higher MA ASP assumptions. “We believe valuations are attractive, as the group currently trades at an undemanding 2.6x FY2023 P/E. Net cash of RMB792 million forms 80% of Jiutian’s current market cap, which could also support higher FY2022F dividends.”
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At Jiutian’s current share price, Tan and Ong estimate approximately a dividend yield of 11% for the FY2022.
As at 2.35pm, shares in Jiutian Chemical are trading 0.1 cent higher, or 1.09% up, at 9.3 cents.
