But analysts remain upbeat on its fundamentals

UOB-Kay Hian is maintaining its 'buy' call on Jiutian with a target price of 60.6 cents. DBS Vickers also has a 'buy' call with 76 cents target while CIMB-GK has an 'outperform' rating on the stock with 77 cents target.

So...can buy at S$0.31 and expect to double your gain.....

 

By LYNETTE KHOO

 

SHARES of Jiutian Chemical came under selling pressure yesterday amid market talk of weak fourth- quarter earnings. But analysts stay upbeat on the stock.

 

The China-based manufacturer of fine chemicals saw its stock slip below 40 cents for the first time since August.

The stock dived six cents or 14.3 per cent to 36 cents at one point before closing trading at 37 cents, a drop of five cents or 11.9 per cent.

Trading was heavy, with 52.16 million shares changing hands.

Its substantial shareholder Legg Mason Inc, which at end-October raised its deemed stake to 8.09 per cent from 7.83 per cent, pared its holding last Friday to 7.23 per cent.

The management declined to comment on the earnings speculation when contacted by BT, but analysts said rumours making the rounds included a weak fourth quarter ended Dec 31, 2007, due to continued pricing pressures on one of its key products - dimethylformamide (DMF).

A Dow Jones MarketTalk report yesterday had it that there were concerns on whether there will be continued strong demand for DMF because of a weaker export market in China that might affect its competitors, leading to an oversupply in China.

Jiutian's margins were squeezed by pricing weakness in its DMF products in 2007's third quarter, with average selling price down 10 per cent from a year ago and 5 per cent from a quarter before to 5,880 yuan (S$1,158).

Its Q3 2007 revenue shed 11.6 per cent from a year ago to 55.97 million yuan and net profit slid 25.7 per cent to 14.33 million yuan.

The company's new 120,000-tonne facility at Anyang City in China that produces DMF and methylamine came on stream in the third quarter last year.

'I think it is a matter of the market taking time to digest the onslaught of capacity and only after this will we see firmer selling prices for Jiutian products,' said a local analyst with a brokerage headquartered in Hong Kong.

'But we believe demand still outstrips supply in China,' he added. 'I would believe by the first quarter or into the second quarter, this new capacity would have been absorbed by the market.'

UOB-Kay Hian analyst Allen Jiao told BT that there was also market talk on a new and larger Chinese DMF manufacturer to be listed in Singapore.

'The management has already denied the credibility of these rumours,' Mr Jiao said. But the company did not provide further details on its financial results for the full year ended Dec 31, as it is scheduled to be announced next month.

Mr Jiao said he expects the fourth quarter to be firmer than the third quarter, led by a likely recovery in selling prices in the fourth quarter.

He noted that third- quarter weakness was caused by a cutback in production by China's sole producer of methylene diphenyl diisocyanate (MDI), Yantai Wanhua. MDI is used together with DMF to produce polyurethane (PU).

As a result, the supply of MDI fell short of that for DMF, which caused an oversupply of DMF. But the production of MDI had since recovered in the fourth quarter.

'We don't see sharp changes in the company's fundamentals and its plans for capacity expansion are (on track),' Mr Jiao said. 'With the commencement of its new DMF projects in Q407 and additional methanol production in Q308, I think the company will grow steadily. But we will keep an eye on its fourth- quarter results.'