Li Heng

Li Heng

Postby winston » Thu May 22, 2008 8:22 am

Not vested. Am concerned about the impact of high oil prices on their margins.

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RESEARCH ALERT-Deutsche starts Li Heng Chemical as 'buy'


SINGAPORE, May 22 (Reuters) - Deutsche Bank initiated coverage on Chinese nylon producer Li Heng Chemical Fibre with a buy rating and a share price target of S$1.40.

"Li Heng is a market leader of nylon yarn products in China and we believe is now in a position to expand its production capacity to satisfy nylon demand in China," Deutsche analyst James Tan said in a note.

Risks to the stock's investment rating include a drop in demand for its products from Europe and the U.S. and negative publicity for fabric or garments made in China.
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Re: Li Heng

Postby winston » Thu May 22, 2008 2:03 pm

From OCBC:-

Li Heng Chemical Fibre Technologies: Spinning a strong growth story Producer of high-end nylon yarn. Li Heng Chemical Fibre Technologies Limited (Li Heng) is principally engaged in the manufacture and sale of high-end nylon yarn products in the PRC.

All its products are sold under the brand names, “Liyuan” and “Liheng”. Its nylon yarn products are sold mainly to fabric and textile manufacturers in the PRC. It also intends to build its own polyamide chip plant to produce its own feedstock.

Nylon fibre gaining popularity. Currently, Li Heng serves some 170 customers, up from 150 it had in FY06, with each of them contributing less than 5% of total sales. At the moment, we understand that demand continues to outstrip supply, driven by the increasing use of nylon fibres in the textile
industry.

Although there have been some weakening in the demand from the US for Chinese made garments, domestic demand remains robust, driven by the growing affluence of the Chinese consumers as well as the still robust Chinese economy. Nevertheless, the export value of the textile industry in China is still expected to grow 15% in 2008, down slightly from18.9% in 2007.

Expanding to meet growing demand. Li Heng intends to further expand its capacity from the current 162,000mt to 257,000mt by 3Q09, driven by the growing demand for nylon. It also intends to build its own polyamide chip plant to produce its own feedstock.

All in, Li Heng expects to invest approximately RMB1,070m, which will come from the RMB1,300m net proceeds that it had earlier raised from its IPO in March 2008. As such, we do not expect the credit crunch to affect its expansion plan.

Initiate coverage with BUY. We value Li Heng based on the two-stage Free Cash Flow to Equity (FCFE) valuation model. Using a required return of 12.24%, we derive a fair value of S$1.16 for Li Heng. And when benchmarked against our EPS forecasts, this translates to an undemanding
10.2x FY08 PER – which is also in line with FS China Index’s 10.1x FY08 PER – and 7.7x FY09 PER.

In addition, Li Heng is looking to pay out at least 20% of its recurring net profit as dividend this year and next year, and we believe this works out to an additional 3.2% yield this year and 3.5%
next year. As such, we initiate coverage on Li Heng with a BUY rating and a fair value estimate of S$1.16. (Carey Wong)
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Re: Li Heng

Postby winston » Tue Jul 08, 2008 1:23 pm

Not vested. From UOB-Kay Hian:-

Li Heng Chemical Fibre Technologies

Massive size, awesome growth
Since the establishment of Changle Liyuan Polyamide Enterprise Co., Ltd in FY03, which was acquired by Li Heng Chemical Fibre Technologies Limited (Li Heng) in FY06, Li Heng has been steadily developing itself in China's chemical fibre industry. It has become a leading manufacturer of high-end nylon fibre products with a solid sales network covering all textile production hubs in China. With its two production facilities located in Changle city, Fujian province, Li Heng plans to achieve economies of scale by continuously enlarging its annual production capacity, which reached 92,400 tonnes in FY07.

Leading position in high-end nylon fibre market. Li Heng has emerged as one of the largest high-end nylon fibre manufacturers in China with an annual production capacity of 92,400 tonnes in FY07. The stunning three-year net profit CAGR of 107.6% for FY04-07 was achieved through a combination of organic growth, increased production capacity, and the introduction of new
products. The company is heading for the next stage of growth by further expanding its capacity, widening its geographical coverage, and moving up the supply chain to mitigate raw material risks and become more profitable.

Largest nylon producer in China. Li Heng is the market leader in the nylon industry in China. Based on sales volumes in FY07, the company’s market share was about 8.4%. With its rapid expansion, we expect the company to account for a 15.5% market share as of FY10. Li Heng is likely to benefit from its stable domestic presence, strong brand image and large scale in terms of economies of scale, and robust bargaining power.

Superior product positioning. Li Heng's strategy is aimed at the high-end market of the nylon fibre industry, which has proven to be an astute move since the company has managed to quickly build up its brand image and won a fine reputation for the high quality and reliability of its products. It also differentiates its high-quality products from others’, which we believe enables Li Heng to capture a significant market share and establish a solid customer base.

Respectable earnings growth. Li Heng has been able to pass on most of the increases in its raw material prices and maintain gross margin at 34-35% over the past few years. This is made possible by Li Heng’s superior product quality and good relationships with major suppliers. However, to be more conservative, we would like to assume that gross margin will gradually
deteriorate over the next few years on continued rising raw material prices and intensified industry competition. However, even with our conservative assumption of a declining gross margin, our earnings forecast for FY07-10 will still reflect a respectable three-year CAGR of 21.3%.

Initiate coverage with BUY. Li Heng is trading at 3.6x FY08 PE and 3.3x FY09 PE. We initiate coverage with a BUY recommendation. Our 12-month target price of S$0.845 implies 5.6x FY08 PE and 5.2x FY09 PE.
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Re: Li Heng

Postby winston » Fri Jul 18, 2008 8:44 am

Not vested. From Kim Eng:-

Li Heng Chemical Fibre (DRAFT) – Initiating Coverage (Anni Kum, DID: 64321470)
Previous Day Closing price: $0.59
Recommendation: BUY
Target price: $0.88

Value is emerging for China’s largest nylon producer
We are initiating coverage on Li Heng (LHCF) with a BUY recommendation. Our DCF target price of $0.88 is based on 14.7% WACC and 1% terminal growth. Our target price implies a FY09 PER of 6.2x which is still at an unjustified discount to its sector peers (at 9.7x PER), given its leading market position in China.

Natural hedge against slowdown in textiles and garment exports

Though lingering concerns of a slowdown in textile and garment exports cloud the entire industry’s outlook, the management is upbeat about the demand for nylon. This is because they are banking on strong domestic consumption and a diverse customer base which is more inclined towards supplying the domestic market.

Earnings boost from capacity expansion
We are seeing topline and bottomline CAGR of 39.9% and 31.5% over FY07-10F, underpinned by capacity growth of 53.8% to 257,000 tons by 3Q09. During this expansion stage, 18 lines of HOY/POY/FDY and 20 DTY will be added, improving the product mix.

Maintaining competitiveness by upstream move

Construction is underway for a polyamide chips plant at its current Binhai Industrial Zone facilities. Production may commence by 3Q09, with initial available capacity of 80,000 tons. We estimate LHCF to be 35% self-sufficient from 3Q09 and cost savings could be significant as raw material costs make up more than 90% of cost of sales.

Nothing to fear but fear itself
Our sensitivity analysis implies that the market has discounted LHCF at 20% WACC and assumed 0.5% terminal growth. This is way too pessimistic considering that Li Heng is a serious player in the premium nylon segment, and its market-leading position will ensure that it is here to stay.
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Re: Li Heng

Postby winston » Thu Jul 24, 2008 3:04 pm

Not vested. From DB:-

Li Heng Chemical Fibre (LHCF SP; Buy) – Market leader of nylon


We believe that Li Heng’s current share price reflects overly pessimistic concerns of lower
global demand for textiles amidst rising oil prices and inflationary cost pressures. With
production capacity of 167.2k tpa, the company has a 14.6% market share in nylon yarn
products in China.


It is climbing the value curve, focusing on higher-margin nylon products while benefiting from a benign raw material price outlook and an undersupply of nylon. We believe that the company’s market leadership position and the economies of scale of its operations could give it a competitive advantage.

Our price target for Li Heng is S$1.40 based on our DCF valuation (13.3% WACC, 1.0% terminal growth rate). This implies a forward PE multiple of 11.1x and 8.7x FY08-09E PE,
respectively.

Risks include higher raw material costs and the effect of a global economic slowdown on textile demand.
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Re: Li Heng

Postby millionairemind » Wed Jul 30, 2008 6:15 pm

Li Heng Signs Contracts For Construction Of Polyamide Chip Plant

Li Heng Chemical Fibre Technologies announced that it has entered into contracts with leading German engineering and construction company Lurgi Zimmer GmbH and Chinese firm Beijing Sanlian Hope Textile & Chemical Technology to commence the construction of its polyamide chip plant as part of the Liheng (PRC) Phase III Development set out in its Prospectus dated 29 February 2008. The plant, costing approximately Rmb550m, has a designed daily production capacity of 200 metric tons of high quality textile grade polyamide chips and it is expected to commence commercial production in the 3Q09.
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Re: Li Heng

Postby winston » Wed Aug 06, 2008 12:47 pm

Not vested. From Kim Eng:-

5. Li Heng Chemical Fibre – 1H2008 Results (Anni KUM, DID: 64321470)
Previous Day Closing price: $0.615
Recommendation: Buy (Maintained)
Target price: S$0.88 (Maintained)

Earnings in line with expectations
Results were within our expectation, with 1H08 revenue and net profit reaching 51% and 54% of our full-year forecasts respectively. 2Q08 revenue grew a strong 61.6% Y/Y to RMB1168m, driven by higher sales volume from an enlarged capacity since 1Q08 and relatively stable overall ASP. Net profit increased by a strong 42.5% to RMB340.4m. This was achieved even with the deduction of RMB49m in tax expenses, compared to tax exemption 2Q07.

Gross margins enhanced by FDY and DTY contribution

2Q08 margins increased slightly from the previous quarter as well as from the same quarter last year. The stable margins were attributable to increased contribution from the higher-margin FDY and DTY products, which collectively accounted for almost 40% of total revenue in 1H08, versus about 24% in 1H07. We anticipate slight declines in gross margins in 2H08 as the company appears to be allocating more of its capacity to a lower-margin new product type of DTY to cater to customer needs.

Strong balance sheet position
The Group’s balance sheet has strengthened, as net cash position improved from RMB489m to RMB2.1b. We see some deterioration in debtors’ turnover from 23 days as at Dec 07 to 29 days as at Jun 08, while inventory turnover held steady at 27 days. Prepayments and deposits increased from RMB3.8m to RMB110m as Li Heng placed huge deposits with major suppliers to secure supply of raw material (PA chips). We suspect there is an anticipated near-term shortage of PA chips and believe the management is proactive in controlling its raw material costs.

Maintain Buy
We are keeping our revenue and net profit estimates unchanged. Outlook for the chemical fibre industry in general has weakened but we expect domestic market leaders in the high-end market to ride out the period slowing global demand. Key catalysts for Li Heng include the additional 90k tpa of capacity and completion of polyamide chip plant both by 3Q09. We reiterate our BUY recommendation on Li Heng with a target price of $0.88.
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Re: Li Heng

Postby millionairemind » Wed Aug 06, 2008 7:53 pm

Li Heng Achieves Strong Growth In 1H08

Mainboard-listed Li Heng Chemical Fibre Technologies, a leading manufacturer of high-end nylon fibres, announced that its IH08 net profit rose 19.2% to Rmb564.5m on the back of a 36.6% growth in revenue.

The robust topline and bottomline growth when compared yoy reflected the full benefit of additional annual production capacity of 74,800 metric tonnes that came on stream with the commencement of Liheng Phase II and Liyuan Phase III production facilities in February and March 2008 respectively.

The company is on track with its Liheng (PRC) Phase III development, which is expected to be completed in 3Q09 and will then increase production capacity to 257,000 metric tonnes.
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Re: Li Heng

Postby winston » Tue Sep 23, 2008 3:40 pm

Not vested. From DMG:-

Li Heng Chemical Fibre (BUY\S$0.465\Target S$1.35) is involved in the manufacture and sale of high-end nylon yarns in Fujian, China. It boasts a total site area of 372,665sqm, consisting of two main production facilities, and a current production capacity of 167,200 tonnes of nylon yarn per annum.

It has a clear business plan going forward, which includes increasing capacity by 54% and building a PA-chip (raw material) plant to supply one-third of its needs by end FY09. It aims to establish an R&D facility with top German chemical names to improve product quality and production efficiency. It is attractively valued at 3-4x P/E.
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Re: Li Heng

Postby winston » Tue Oct 14, 2008 11:50 am

Not vested. From Kim Eng:-

Li Heng Chemical Fibre - company update (Anni Kum: 64321470)
Previous day closing price: $0.275
Recommendation: Buy (Maintain)
Target price: $0.45 (reduced from $0.75)

Pre-emptive valuation reduction provides significant upside
In view of the company’s positive net cash less capex position of $0.04 and cheap P/Bk valuation of 0.9x, we are reiterating our BUY recommendation. However, we are revisiting our estimates because we are not at ease with management’s confidence about strong demand growth.

We believe orders indications they have received for the past year would have been outdated given the drastic turn in outlook. Hence, we are lowering our target price to $0.45 ahead of negative surprises by factoring a 4-7% decline in ASP and significantly lower utilisation assumptions of 54-66%.

Market data suggests weakening demand and competition
Management confirmed that ASP for its nylon had declined 2-3% in Sep due to lower raw material prices. But market data continues to suggest weakening downstream demand, leading to price pressure on nylon products. Market prices of nylon DTY and FDY declined 3-4% between Jul and Sep. We’ve turned cautious on Li Heng’s aggressive expansion given the current condition, while also acknowledging that the company is in a much stronger position to tide over the present market doldrums, given its market leadership and net cash position.

Innocent victim of negative publicity of S chips
Despite demand pressures, we still believe Li Heng is one of the innocent victims of extremely negative sentiments, exacerbated by news of a listed China printing and dyeing company defaulting on its payment to suppliers and also of Ferrochina’s liquidity issues.

Buy amidst irrational pessimism
We’ve slashed our estimates for revenue by 5-40% and for net profit by 9-46% over FY08-10F, and our growth projections are lowered to just 3% CAGR. The new DCF-target price of $0.45 gives an implied PER of 4.3x based on FY09 earnings estimate. At the current market valuation, it seems the market is implying a 42% decline YoY in FY09 earnings to RMB544m, which we believe is too pessimistic given its market leadership. There is a 64% upside at the current price.
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