The company is now the largest producer of acrylic acid and acrylate esters in China and controls 20 per cent of the domestic market, its CEO tells OH BOON PING

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Mr Sun: SunVic's targets are achievable given demand for its products is growing and should continue to do so in the years ahead

Based in Jiangsu, China, the firm recently reported a near eight times jump in net profit to 73.7 million yuan, while sales doubled to 646.3 million yuan for the three months ended March 31.

Chief executive Sun Liping told BT the targets are achievable given demand for SunVic's products is growing and should continue to do so in the years ahead.

Listed last year, the group makes a product called PMIDA - or N-phosphonomethyl Iminodiacetic Acid - that is used mainly in the production of glyphosate, a weedkiller.

Rising fuel cost has led to greater demand for biofuel - and both glyphosate. As a result, PMIDA orders in North and South America have increased, Mr Sun explained.

Not surprisingly, PMIDA saw sales grow more than four times to 257 million yuan in the first three months of the year. Gross margin for PMIDA is 38 per cent.

SunVic also makes the intermediate chemical products acrylic acid (AA) and acrylate esters (AE), which are used to produce many everyday industrial and consumer products.

For example, AE is used in the production of surface coatings such as topcoats for cars, machinery, paints, plastic and self-adhesive envelopes.

Gross margin for the segment is about 4 per cent.

Mr Sun said SunVic is now the largest producer of AA and AE in China and controls 20 per cent of the domestic market. Its AA/AE customer pool numbers more than 500, including multinational corporations in China.

Major customers include Jiangsu Yinyan, Shanghai Kailun Trading, Nortox, Helm and Marubeni Specialty Chemicals.

In Q1 2008, SunVic's total gross profit more than tripled to 112.8 million yuan, with sales of AA and AE accounting for 13.8 million yuan, and PMIDA the lion's share of 98.8 million yuan.

Mr Sun said higher Q1 sales were achieved despite the severe snowstorm that affected the transport system in most of eastern and central China.

'In addition, Q1 has traditionally been a low season for our products, in particular acrylic acid and acrylate esters,' he said.

SunVic's plants are in the Chenjiagang Chemical Zone in Yancheng City in Jiangsu province.

'According to Chemical Market Associates (CMAI), a consulting firm specialising in the petrochemical industry, eastern China, where SunVic is located, accounted for 65 per cent and 50 per cent of China's AA and AE demand in 2005, respectively,' says a CIMB-GK report.

This year, SunVic expects to raise production capacity for PMIDA 50 per cent from the current 20,000 tonnes to 30,000 tonnes.

The firm has already pumped 50 million yuan into the expansion of PMIDA and AA & AE and will inject another 25 million yuan before the end of the year.

To control material costs, SunVic plans to set up a new plant to produce propylene - a key ingredient in AA and AE production.

The project is a joint venture between SunVic Chemicals and Mr Sun, who will contribute 90 per cent of the total cost.

Construction is under way, and the plant is expected to start operating next year.

Other growth strategies include research and development into new products and merger and acquisition opportunities.

CIMB-GK notes that economies of scale and improving efficiency will allow SunVic to tap the growing AA and AE demand.

Respective demand for the products is forecast to grow 16 per cent and 10 per cent a year between 2005 and 2010, it says. This 'should address the current over-capacity by FY09. SunVic stands to benefit with its larger scale, wider market reach and better efficiency'.

The research house expects sales and net profit to grow at a compound annual rate of 25 per cent and 19 per cent from FY07 to FY09 with the new capacity.

However, CIMB believes net profit growth could be lower than sales growth, largely due to higher raw material prices and higher selling and administrative expenses after SunVic's initial public offering.

In terms of industry outlook, CIMB believes there is over-supply in China's AA market in the near term but that the robust demand is likely to outstrip supply in FY09.

'According to CMAI, AA demand in China is projected to grow at 16 per cent per annum over 2005-2010,' CIMB says. 'Based on these estimates, management reckons that China's estimated 15-20 per cent over-supply should be resolved by end-FY08.'

In addition, SunVic's second-largest market, South America, is projected to grow 17 per cent a year over the same period.

'We expect demand for SunVic's products to remain strong due to its diversified sales base globally,' says CIMB.

 

 

SUNVIC Chemical Holdings aims to hit a net profit of 300 million yuan (S$58.3 million), plus sales of three billion yuan at the end of this year.