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【出版时间及名称】：2010年3月中国化工行业研究报告
【作者】：三星证券
【文件格式】：pdf
【页数】：53
【目录或简介】：
WHY SHOULD YOU READ THIS REPORT? The Chinese chemical sector has been ignored by investors for a long time. SPC and YCF’s share price performance of has been lackluster since the beginning of the chemical downturn in 2007. However, at P/Bs of 1x, we see the risk and reward profile for both names as increasingly attractive. Higher-for-longer chemical margins in 2010 due to a global supply disruption and possible parent company privatizations would help SPC and YCF regain share price momentum. SPC and YCF could offer average upside of as much as 103%.
WHAT HAS THE MARKET MISSED?
The sector has been ignored for long time: Since the chemical cycle peaked in 2007, the share prices of SPC and YCF have underperformed as investors factored in the worst of the downturn. They are now trading at around 1x P/BV, 23% below the Jan06-Dec09 average of 1.3x. Chemical margin rebound to last longer: Margins fared better than expected in 1Q10, largely due to strong chemical demand from the Chinese auto and property sectors and global supply disruptions on unplanned shutdowns in Asia and reduced supply from Middle East. With supply disruption likely to last longer than expected and Chinese demand remaining strong, we expect chemical margins to stay higher for longer and boost 2010e earnings. That would provide an upside surprise for the market. Privatization possible at 1x P/B: From the privatization angle, we see the Chinese chemical shares offering exceptional value. Between 2004 and 2006, Sinopec Corp privatized 6 subsidiaries at an average 2.3x P/B. With the P/Bs of SPC and YCF coming down to close to 1x, we believe that management could seriously consider the possibility of privatization again. The long term share price risk appears to be on the upside.
WHY DOES IT MATTER? We expect the share prices of SPC and YCF to regain momentum in the coming 12 months for two reasons. First, both names are likely to deliver stronger than expected 2010e earnings due to the recent rebound in chemical margins and years of industry consolidation. Secondly, the privatization story is likely to support the SPC and YCF share prices at least at the current 1x P/B level at which they are currently trading. Share price risk appears to be on the upside. WHAT SHOULD YOU DO? We suggest investors accumulate the Chinese chemical shares on any pull-back. SPC is our top pick. Sinopec Shanghai Petrochemical: “Rising from the ashes” – 3 Star Buy, HKD3.68, 33% upside. SPC should outperform its peers given its fully integrated business model and the booming chemical demand from the automobile and property & construction industries going forward. On the other hand, we are more positive about 2010e chemical margins in China as a result of more scheduled maintenance in China and likely below expected supply from the Middle East, driving 16% yoy earnings growth. The stock looks 25% undervalued currently with additional upside from Sinopec’s potential privatization. Sinopec Yizehng Chemical: “Out of intensive care” – 1 Star Buy, HKD2.18, 13% upside. China’s polyester industry should see light at the end of the tunnel after years of consolidation. We expect polyester margins to recover slowly but steadily on improving capacity utilization and strong textile demand. Being an integrated producer, Yizheng, will enjoy margin expansion in 2011e on higher polyester prices and lower feedstock costs. The risk/reward profile for Yizheng looks favorable at the current share price. We see recent share price corrections as a good buying opportunity to ride the recovery in the polyester industry.
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