• Jiutian Chemical’s FY20 core net profit of RMB155m was below our expectations (78% of our full-year forecast) mainly due to lower-than-expected gross profit margin in 4Q20.
• We remain positive as near-term ASP outlook remains strong. As of 18 Feb, dimethylformamide (DMF) prices in Southern China stood at RMB10,200 (+25% year-to-date, +82% y-o-y).
• Maintain ADD with a lower target price of S$0.135 (pegged to 5.7x FY22F P/E).

Juitian Chemical's 4Q20 Results Below Expectations

• Boosted by higher ASPs, Jiutian Chemical (SGX:C8R) reported a 4Q20 net profit of RMB86m (+66% q-o-q). FY20 core net profit came in at RMB155m, a reversal over FY19's net loss position.
• Nevertheless, we deem the set of results as below expectations vs our full-year forecast of RMB200m. The key disappointment was lower-than-expected gross profit margin in 4Q20, attributable to higher raw material costs during the quarter.

Near-term Outlook Remains Positive

• We remain positive on near-term ASP outlook, as we expect downstream demand to stay robust riding on a recovery of China’s economy, as well as rising demand for methylamine (MA) products from fast-growing sectors including electric vehicle (EV) batteries, semiconductor, pharmaceuticals and animal feeds.
• As of 18 Feb 2021, the dimethylformamide (DMF) asking price (inclusive of 13% value added tax) in Southern China stood at RMB10,200/ton (+25% year-to-date, +82% y-o-y) according to Oilchem.net, an online platform for energy and chemical information in China.
• We forecast Jiutian Chemical to report a net profit of RMB222m (+28% y-o-y) in FY21F.

Aggressive Capacity Expansion Plans

• In view of the favourable operating environment, Jiutian Chemical is in the process of finalising an expansion plan comprising a new 100kt MA plant adjacent to its net cash of RMB110m (as of end-FY20), supplemented by its cash generation in FY21-22F.
• We have yet to factor in the capacity expansion plan into our forecasts.

Maintain ADD With a Lower Target Price of S$0.135

• Maintain ADD on Jiutian Chemical as it rides on a cyclical assumptions. Our target price is lowered to S$0.135, still pegged to 5.7x FY22F P/E (20% discount to SGX-listed peer China Sunsine (SGX:QES)).
• Potential catalysts include continued uptrend in DMF company Anyang JiuJiu, with management expecting a resumption of operations in 1H21F.
• Downside risks include a sharp decline of DMF ASPs and higher raw material cost pressure.

Source: CGS-CIMB Research - 24 Feb 2021