• Jiutian Chemical's 1Q21 net profit was above expectations at RMB90m (+42% q-o-q, 31-fold increase y-o-y), driven by higher-than-expected ASPs.
• DMF prices remained high at RMB11k/ton (+40% year-to-date, +120% y-o-y), thanks to robust downstream demand. We raise our Jiutian Chemical's FY21F net profit forecast by 41%.
• We see possibility of a maiden dividend (since 2008) to be declared by Jiutian Chemical this year. Reiterate ADD with a higher target price of S$0.15, still pegged to 5.7x FY22F P/E.

1Q21 a Record Quarter for Jiutian Chemical

• Jiutian Chemical Group (SGX:C8R)’s 1Q21 net profit of RMB90.3m (+42% q-o-q, 31-fold increase y-o-y, see Jiutian Chemical's announcements) was above our expectations (our forecast: RMB78.5m), forming 41% of our FY21F forecast.
• Key surprise was higher-than-expected ASP for both dimethylformamide (DMF) and methylamine (MA), which grew 98% y-o-y and 38% y-o-y, respectively.
• Despite 1Q being a seasonally weak quarter due to CNY, plant utilisation rate remained optimal. These factors resulted in 1Q21 revenue growth of 120% y-o-y and gross profit margin expansion of 25% points to 31.5%.

Continued Strength in DMF Prices

• DMF prices remains high at RMB11k/ton currently (inclusive of 13% value-added tax), according to 100ppi.com. Backed by strong net profit forecast for Jiutian Chemical is raised by 41% to RMB312m accordingly.

Dividend Payout a Possibility for FY21F

• According to Jiutian Chemical, its main operating subsidiary in PRC, Anyang Jiutian, has returned to a dividend payout ratio of 20%, this implies an FY21F dividend of S$0.007 per share and a dividend yield of 6.6%.

Reiterate ADD on Jiutian Chemical, With a Higher Target Price of S$0.15

• Reiterate ADD as we expect Jiutian Chemical to enjoy strong earnings in 1H21F riding on the cyclical uptrend of MA/DMF prices. With our higher earnings per share forecasts, our target price for Jiutian Chemical is also raised accordingly to S$0.15, still pegged to 5.7x FY22F P/E.
• Potential catalysts include a continued uptrend in DMF ASPs and stronger profit contributions from associate company Anyang JiuJiu, as management expects Anyang Jiu Jiu to resume operations in 1H21F.
• Downside risks include a sharp decline in DMF ASPs and higher raw material cost pressures.

Source: CGS-CIMB Research - 28 Apr 2021