Brokers' take: CGS-CIMB raises target price for Jiutian to S$0.17 on higher EPS estimates

CGS-CIMB raised its target price on Jiutian Chemical Group to S$0.17 from S$0.09, after hiking its earnings per share (EPS) estimates for the chemical company by 7.4 per cent to 41.9 per cent for FY2022 to FY2024.

The research team maintained an “add” rating on the Catalist-listed company, noting that it has a strong net cash position and that the industry cycle remains favourable, CGS-CIMB said in an analyst report on Thursday (May 5).

The target price implies a potential upside of 75.3 per cent from Jiutian’s closing price of S$0.097 on Thursday.

In its first-quarter earnings, Jiutian’s net profit was up 122.7 per cent to 201.1 million yuan (S$41.8 million) from 90.3 million yuan in the year-ago period. The company also posted strong revenue growth of 76 per cent year on year, despite weaker sales volume due to Covid-19 disruptions and the Chinese New Year holiday.

CGS-CIMB said the first-quarter results formed 71 per cent of its full-year forecast, exceeding expectations.

It also noted that gross margin expanded to 35 per cent in the first quarter, helped by stronger average selling prices while raw material costs trended lower.

The research team noted that prices of the chemical Dimethylformamide have pulled back slightly since late-March 2022, with prices currently stabilising at 13,000 yuan per tonne over the past 2 weeks, from 16,000 yuan per tonne in March.

“We believe this has factored in the ongoing Covid-19 disruptions in China,” said CGS-CIMB.

Noting that input costs have also come off their peak in March, the research team expects near-term profit spreads should still be favourable for the company.

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CGS-CIMB said it continues to expect the company to post a total dividend per share of S$0.011 in FY2022, which indicates an 11 per cent dividend yield, assuming a payout ratio of 20 per cent.

It added that Jiutian’s significant net cash position of 718 million yuan as at the end of Q1 will likely support higher FY2022 dividends and potential share buybacks.