Hit by volatile material price

Story: SP Chemicals 3Q08 performance was below expectation. Caustic soda was the only profitable segment during the quarter. All other segments reported losses at gross level, hit by high raw material cost of ethylene and EDC and write-down of inventory costs as oil price fell sharply subsequently. As a result, net profit slipped 22% yoy and 71% qoq to RMB44.2m although sales grew 168% yoy and flat qoq at RMB1004m.


Point: Considering that the economy outlook remains clouded, SINPU’s earnings is likely to be affected in the short term. Singapore Company Focus Group have conservatively factored in lower profitability across all product segments from 2H08 till 1H09. Their net earnings for FY08 and FY09 are reduced by 30% and 19% respectively to RMB268m and RMB365m.

As the share price has surged and stayed near the offer price level, the
more risk adverse investors may consider taking profit given the limited upside. The offer price is substantially above the TP of S$0.47