Jiutian Chemical Group

What’s on the table (Dated 31 Oct 2007)

Jiutian Chemical Group (S$0.61) - Re-rating catalysts ahead

We visited Jiutian’s new DMF plant in China recently and witnessed the plant’s fast ramp-up. We also saw the construction of the new methanol plant, on track for trial production by mid-2008. In view of higher methanol prices recently, we expect margins to decline over the next three quarters before the methanol plant comes on stream. We have reduced our FY07-08 EPS forecasts by 12-29% to factor in lower ASP assumptions, a slower ramp for the methanol plant and higher methanol prices. However, our DCF-derived target price has been raised from S$0.63 to S$0.75 (WACC 14%, LTG 1.5%) as we roll forward our valuation basis to CY08. Maintain Outperform for its strong earnings growth, undemanding valuations vs. industry peers and M&A prospects.

http://sgmarkettalk.files.wordpress.com/2007/10/daybreak-311007.pdf