Jiutian Chemical Group’s 1QFY2021 ended March earnings of RMB90.3 million ($18.5 million) beat CGS-CIMB Research’s expectations, making up 41% of its full-year estimates.
The earnings, which increased 31-fold y-o-y, were driven by higher-than-expected average selling prices (ASP) for both its dimethylformamide (DMF) and methylamine (MA) products following robust downstream demand.
Revenue grew by 120% y-o-y for the period while gross profit margin expanded to 31.5%.
CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan point out that Jiutian Chemical had a "record quarter", in contrast to a usually weaker seasonal performance due to Chinese New Year. They attribute the performance to the higher ASP as well as optimal plant utilisation rates.
The analysts anticipate DMF ASP to remain robust through to the 2QFY2021, with the group to enjoy strong earnings in the 1HFY2021.
To that end, they have revised their target price accompanying their ‘add’ rating for Jiutian Chemical to 15 cents (from 13.5 cents previously) on the back of raised ASP assumptions for DMF for FY2021.
“We raise our FY2021 ASP assumption for DMF to RMB8.7k/ton; our FY2021 net profit forecast is raised by 41% to RMB312 million accordingly,” they say in an April 28 research note.
Ong and Tan also believe there’s a possibility for the group to declare its first dividend since 2008 this year given its net cash position, healthy cash flow expected in FY2021, and its main subsidiary in China returning to a retained earnings position as of end-FY2020.
“Assuming a dividend payout ratio of 20%, this implies an FY2021 dividend per share of 0.7 cents and a dividend yield of 6.6%,” they add.
As at 3.11pm, shares in Jiutian Chemical are up 0.2 cents or 2% higher at 10.2 cents.
