It has been a disastrous year for the materials sector with FTSE ST Basic Materials Index clocking in a decrease of 29.2 percent. However, there are three material stocks that bucked the trend averaging a return of 458 percent leading to the end of 2017!
Interestingly, these three stocks have their core operations in China. Having already been tightening the excessive supply situation in China’s basic material sector, would 2018 bode even better for these stocks?
The company engages in manufacturing and sales of rubber chemical products, also the biggest producer of rubber accelerators globally and insoluble sulphur in China. It serves established brand names like Goodyear, Michelin, Bridgestone and other market players.
In its latest financial statement for 9M17, revenue rose by 16 percent to Rmb634.4 million which was mainly driven by the increase in its overall ASP. Compared to previous year, ASP jumped by 25 percent to Rmb18,541 per ton as vigorous environmental inspections were imposed which failed many rubber chemical producers, leading to supply deficit. Ultimately, net profit soared by 35 percent to Rmb209.3 million being uplifted by the outstanding performance in revenue.
Continued expansion in its accelerator line, a 10,000-ton (high grade rubber accelerator) line is waiting for government approval for trial runs. If successful, another two lines of 10,000 each will be added, increasing accelerators capacity by 34.5 percent to 117,000 ton.
Completion of the new 10,000-ton Insoluble Sulphur production line in Dingtao Facility is currently undergoing machinery testing and is expected to commence its production in 2018, increasing Insoluble Sulphur production to 30,000 ton. Meanwhile, expansion of Guangshun Heating Plant is expected to complete by 4Q17 to further improve cost-savings annually.
With over 69 percent of its revenue segment solely from China, investors seem bullish hence pushing its share price to $0.89, rising some 78 percent year-to-date with a total market cap of $440 million as at 20th December 2017.
Delong Holdings participates in steel-related businesses, primarily in manufacturing and sales of hot-rolled coils (HRC) and steel trading. The broad network of client comes from Bohai Economic Rim, an upcoming economic powerhouse in Northern China that concentrates on heavy industries and manufacturing.
The latest financial statement for 9M17 reported that revenue increased by 37.5 percent to Rmb9.9 billion due to a substantial hike in ASP and higher sales volume of HRC. Gross profit jumped by 99.1 percent to Rmb1.98 billion and gross profit margin rose by 6.2 percent to 20.1 percent as rise in ASP outperformed the rise in raw materials prices together with increased production efficiency from upgraded production facilities. Overall, net profit soared by 185.1 percent to Rmb1.74 billion.
According to China Iron and Steel Association, consumption of steel products is estimated to grow by 3 percent – 4 percent annually, forecasted to 840 million tonnes in 2017. This is supported by Xi Jinping’s One Belt One Road Initiative, which is an infrastructure-driven development framework and Company’s strategic location of business in Bohai Economic Rim, further improving company’s revenue growth.
However, high volatility in steel prices and industrial pollution are the main concerns for the company. China authorities have been taking action to cut overcapacity in steelmaking industry and tightening its environmental protection regulations by forcing companies to reduce half of its production during winter season or smoggy days. Company’s retaliation plan is to further invest into technological upgrades and enhancement to reduce emission and improve energy efficiency, strengthening its production capabilities while adhering to new regulations imposed.
Company’s revenue segment is heavily concentrated with 96 percent arising from China. From its share price of $2.6, Company is the largest contributor to SGX’s materials sector with over 796.6 percent year-to-date, arriving at a market capitalisation of $284.3 million as of 20th December 2017.
The company deals mainly with manufacturing and sales of chemical-based products such as Dimethylformamide (DMF) and Methylamine in China. These chemical substances can be found widely, ranging from non-consumables such as agricultural chemicals to daily consumable goods such as processed foods.
In its latest financial statement for 9M17, revenue grew by 64 percent to Rmb753m largely due to the rise in both ASP and sales volume of DMF and Methylamine which arose from supply deficit by caused stoppage and cuts in production for environmental reasons. Gross profit jumped by 170 percent to Rmb 88m and gross profit margin increased by 4.6 percent to 11.7 percent primarily due to higher ASP. Conclusively, net profit surged by 563.9 percent to Rmb42.7 million.
In an attempt to improve plants’ efficiencies across the board, there was a scheduled maintenance shutdown of DMF and Methlaymine facilities in August for over 30 days. With that, the facilities are considered to be in their tip-top condition which is expected to operate at higher efficiency, the management is positive about maintaining its profitability for the next quarter.
Company’s revenue segment comes entirely from China, from its current share price of $0.060 it has amassed over 500 percent year-to-date arriving at a market capitalisation of $109.1 million as of 20th December 2017.