SunVic Chemical is eyeing record net profit of at least Rmb300m this year vs Rmb4m in 2009 when sales were hurt by the global economic downturn. The growth is underpinned by firm demand & higher selling prices for its chemicals, which are used for making various industrial & consumer products from adhesives to diapers.
Outside of China, there is not much new prodn capacity coming onstream. Margins have rebounded as the ASP of acrylic acids surged 44% to Rmb13k per ton in 2Q10 from Rmb9k in 1Q & is still rising due to increased demand from its downstream customers. To mitigate against risk of higher raw material costs.
SunVic is building a cracker plant to produce propylene, a key ingredient for making acrylic acids, which will lead to annual cost savings of at least Rmb100m when fully operational in 2011. The company is also planning two additional plants to increase prodn of acrylic acids, with the 1st expected to be completed in 2012. Both projects are expected to cost about Rmb900m, part of which will be funded via a cash call.
Earnings in 1H10 jumped >6x to Rmb156m, exceeding the average annual profit of Rmb100m between 2006 & 2008. Based on the profit estimate of Rmb300m for FY10, the forecast P/E of 4x appears compelling. The company has also recently cancelled 50m treasury shares which it bought back from the open market, reducing its share base & enhancing EPS. Phillps has a Buy on the stock with $0.60 price target.
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