LiHeng

LiHeng Chemical Fibre: still weak 3Q11 results.
Revenue at Rmb 1.1b, +23.2% yoy, +21.6% qoq, mainly due to increase in sales of self-produced PA chips, as well as increase in ASP of nylon yard pdts to Rmb 32,650/mt (+22.7% yoy), due to the higher cost of raw materials.
Net profit at Rmb 40.2m, - 43.6% yoy, +11.1% qoq.
Gross margins continued to decline, with 3Q11 GPM at 7.7% vs 3Q10’s 10.7% and 2Q11’s 8.2%, as the rise in cost of raw materials (incl anti-dumping tariffs) more than offset the rise in ASP.
We note the higher risk in inventory, which is up 49% ytd at Rmb 911.7m.
Mgt has started the construction of a new PA chip plant, with an annual capacity of 100k mt, and expects completion in Dec ’11, with pdtn to commence in Jan ’12. Says this will enable the co to be self-sufficient in PA chips for pdtn of its nylon yard pdts, and mitigate the increase in cost of pdtn brought about by the antu-dumping tariffs on imported PA chips.
Mgt also updates that the overhaul and repair work on Liyuan Phase I was completed in Jul ’11, and that for Liyuan Phase II has commenced in Aug ’11 and is expected to be completed in Dec ’11. Expects about 6l – 7k mt of lost pdtn capacity during the downtime.
The stock trades at 4.3x P/E, 0.3x P/B.