by 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.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"