By JAMIE LEE
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SINO Techfibre has emerged from the fourth quarter relatively unscathed in the challenging chemical fibre industry but a recent analyst report is sceptical about the Chinese company's ability to sustain its performance.
'We are not convinced,' wrote DMG & Partners Securities analyst Heng Tong Jin in a March 6 report.
The report drew attention to the synthetic leather maker's fourth-quarter gross profit margins and average selling prices last year.
In Q4 2008, Sino Techfibre's gross profit margin fell about 15.4 percentage points to 29 per cent from the third quarter's 44.4 per cent. In contrast, sector peers Li Heng Chemical Fibre Technologies and China Sky Chemical Fibre reported an average fall of 18.2 percentage points in their gross profit margins to 11.9 per cent from Q3's average 30.1 per cent.
Sino Techfibre's selling prices also slipped by an average 10.5 per cent quarter-on-quarter, against an average 30.3 per cent drop for the competitors.
'The contrasts are prominent,' noted Mr Heng.
'With all three companies belonging to the same sector, one would expect a fair amount of congruency in their financial performances, especially in dire economic times such as second half 2008.'
It came as a surprise to see the company 'unscathed', unlike how its peers were hit, he noted.
'We are certain that world chemical (and) commodity prices fell in strong tandem with crude oil prices between the third quarter and fourth quarter 2008,' he added.
'Therefore we cannot substantiate strong reasons for Sino Techfibre's continued outperformance.'
The report also drew attention to the 600 million yuan (S$135 million) spent on four pattern moulding paper (PMP) lines last year, or $30 million per line.
'Management has also repeatedly been tight-lipped over PMP issues, citing the need for 'industry secrecy',' he said.
He has downgraded the stock to a 'sell' rating from a 'buy' call to reflect 'scepticism and pessimism' on the business, as well as the market's current poor perception of S-chips.
Sino Techfibre said yesterday that it has been able to maintain average selling prices and gross margins in the fourth quarter because it included orders made in the middle of the year that were at better price levels.
'We do not have any comparables who are carrying out the exact same business in which we are operating in,' the company said in a regulatory filing, adding that the product mix, quality and customer base are different from 'other similar participants'.
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