Li Heng

Our analyst recently paid a site visit to Li Heng’s new nylon yarn and polyamide chip (PA chip) production facilities in Changle City, China. The Co will begin constructing phase 2 of the PA chip production facilities (est to cost RMB715m and would be funded by the company’s internal resources) next to the existing plant LHCF. Upon completion in 3Q11, Li Heng is expected to be self sufficient in raw materials when this plant, with an annual capacity of 100,000 ton.

However, the cost savings from using its own PA chips could be partially offset by the anti dumping tariffs by China on imported PA chips. Management is optimistic about passing on the extra costs to its customers due to its strong bargaining power and firm demand for its nylon products. The management also does not expect the Euro zone credit crisis to have an impact on textile demand. Kim Eng maintains BUY and TP of $0.35 based on 10x FY10 PER.