yizheng chemical 1033

yizheng chemical
2010年10月16日 星期六

my chinese typing is bad, anyway give my views in english as brief as i can.

share outstanding of yizheng (1033.hk/600871.ch) is 4000m shares. after sharp rise in H share to 3.14 it implies in h share valuation 12560m hkd market capitalization

such valuation is still very reasonable compared with a share price of 9.82 rmb, a 71% discount.

i am not sure why the discount is so large. without any narrow of valuation gap some points can be noted

1) out of 4000m share outstanding, 1680m held by sinopec, 720m citic group, ccb fund holds 25m, boc fund holds 6.5m, senior management holds 7.12m, a investment co from shanxi holds 1.50m. turnover in hong kong H and shanghai A for this share last 3 days was huge. total share t/o is 313+35.52m=348.52m. this will arrive at 2753.12m shares. if assume the 'diehard' holder to be 2404m, which are the long term investors stated above, the % changed hand is 21% of shares that are actually transactable. is it merely a speculation for privitization? that is way too high a percent to be resulted if this is the only reason

2) petrochemical industry is favored by rise in RMB, 1% of rise in RMB will result in 6-12% rise in EPS, according to GS

3) oil price has stood above 84 usd/barrel which means the refinery margin by petrochemical industry can be reset, refinery margin goes to 8 usd level because the refined oil price will rise next week by 3%



4) 卢立勇 is newly appointed as president. shareholding structure of 934 has changed late last month. seems restructuring is happening within the group. a good article from findingalpha about food and chemical consolidation in china
http://bit.ly/m4VwET

5) capacity wise, PTA and EG price will have limited downside risk because the capacity expansion has been slow. the reason is because the sector was in terrible shape last 3 years. if you look at 1033 annual report, in 2008 it suffered a 1.9b hkd loss, largest in its history. however after the petrochemical rule has rolled out in 2009, the environment for petrochemical industry has been much improved. do remember yizheng is worlds largest manufacturer of polymer and china's largest.

6) use of PTA is mostly for manufacturing of PET, main material for making of plastic bottles which has been experiencing tremendous growth in last 5 and probably next 10 to 20 years because of accumulation of middle class and urbanization acceleration

7) another material they make is polyester fiber strips 绦纶短纤. historically, the difference in pricing between PFS and cotton is only 3k-5k rmb/tonne, because cotton has gone up so much these 2 months, the spread is now 11k. very likely therefore PFS will also increase which improve 1033 margin

8) valuation of 1033.hk is np1h 432 ne1h 7344 which means 1.51x PB and 12.9x PE, because of raw material rise very likely this year PE will come down to 10x PE and only single digit next year. the best case for yizheng will be for oil price to steadily rise, e.g. 10% in six months, rmb appreciates gently, cotton price flat or steadily rises, weather to become cold/extremely cold. for sinopec, it will be best if they can privitize this company as early as possible. previously because of leakage of information, they have spent an additional 5b rmb to privitize jilin chemical and beijing chemical

9) there is notice from a share exchange that a share reform may be happening next week or by end of october
http://bit.ly/izIYjY