(UNRATED)
We visited Changjiang Fertilizer‟s (CJFH) plants in Hunan, China. CJFH is a coal-based fertiliser manufacturer that started out with the purchase of one 10,000 annual capacity plant in Nov02, and has since increased its capacity to 215,000 tonnes as of Mar11. Its key products include ammonium bicarbonate (64% of FY10 revenue), ammonia product (29%) and methanol (7%), and are sold under the brand names of “Mijiang”, “Luocheng” and “Jingniusan” through its distributors in Hunan, Hubei, Guangdong, Guangxi and Jiangxi Province, China. CJFH was listed on main board of SGX-ST on 13 Oct 09 through the reverse takeover of Zhonguo Jilong.
Growth strategy. The increase in annual production capacity of 205,000 tonnes was mainly due to upgrading of existing facilities and M&As. Upgrades at CFJH‟s Miluo plant added annual capacity of 115,000 tonnes, while acquisition of Xiangyin plant in 1Q10 and Hanshou plant in 4Q10 contributed another 90,000 tonnes. Higher production capacity and selling prices lifted 1Q11 net profit, which came in at RMB46m (+159% YoY) as revenue grew 112% to RMB168m.
Future plans. CJFH will continue to upgrade existing facilities, and look out for opportunities to acquire readily available fertiliser plants in Hunan to gain market share and achieve economies of scale. Through internal resources and bank loans, CJFH will invest RMB70m to add 40,000 tonnes capacity, and RMB100+m to adopt heat and water recycling technology at its Xiangyin and Hanshou plants. Subject to availability of funds, management intends to spend close to RMB900m for another five acquisitions (with an aggregate of 600,000 tonnes in annual production capacity) over the next three years.
Valuation. CJFH trades at an undemanding 3.2x FY11F P/E based on consensus estimates for RMB148m net profit (which was revised upwards from RMB126m post-1Q results).
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