YANTAI SPANDEX CO., LTD. (002254), investment value analysis--Aromatic polyamide fiber has replaced spandex to become the segment in which it is early mover-- Liu Xuming -- Hold (Initial) Pioneer of special fiber industry：Spandex and aromatic polyamide fiber 1313 respectively account for 73% and 23% of the Company’s recent revenue. The Company is the first to produce spandex in China. The capacity is 22.5 thousand tons per year, ranking fourth in China and second among domestic companies. Prior to 2010, the Company can guarantees its placement among the top five companies by increasing capacity via improving manufacturing technology, which shows a significant scale advantage. The main driver behind future earnings is civilian-grade aromatic polyamide fiber. In May 2004,the Company was the first to produce aromatic polyamide fiber 1313 in terms of full production at a capacity of 3200 tons per year. The initial pilot installment of aromatic polyamide fiber 1414 100 tons has been finished, and will be put into production at the end of 2008. The spandex industry bottoms out: capacity in 2007 increased by 20.23%, and it is anticipated to be up in 2008 by 18.15%. In 2008, 78.58% of the new increased capacity has been put into production (so the price has fully reflected the impact of the capacity that has been put into production). Growth rate will slow by 10.40% in 2009. Taking into account the postponement of projects because of the gloomy business climate, the growth rate is only 1.93%. Downstream textile industries are burdened by the recent global economic downturn, limiting growth. Exports (which account for 15% of total out) have also fallen, and the future does not look bright. Current prices have fallen to the 2005-06 levels, generally a loss price level for the industry, only a few leading enterprises are turning a profit. We believe that spandex prices have already bottomed-out, and that business climate will remain slow in 2009/10. Technological hurdles are holding back the production, and locking in the profits, of aromatic polyamide fiber: Over the next three years, global production of 1313 and 1414 fiber (actual production) compound growth rate will be 4.55% and 7.65%. The technological boundaries for the production of aromatic polyamide fiber are relatively high. Since Dupont and Teijin have a monopoly on this technique, their market share makes up 63% and 29% respectively, and will account for 90% of production over the next three years. It is clear that these two companies have cornered the market. The use of aromatic polyamide fiber still has room to expand. Supply will not meet global demand in the near future, locking in profits for the segment. Risk factor: the fluctuations of the downstream textile industry will have significant impact on the gross profits of the spandex segment. Render a rating of ‘Hold’: with the increased capacity of aromatic polyamide fiber, the operation of aromatic polyamide fiber will gradually contribute to the Company's revenue and profits. Aromatic polyamide fiber in 08/09/10 will account for 52%/78%/66% of gross margins. Due to the low price of spandex and pressure on profitability, the Company's aromatic polyamide fiber will help benefit gross margins. In 09/10 gross margins grew 19%/18% YoY. EPS in 08/09/10 is RMB 1.62/1.15 /1.81; considering a combined PE and DCF, we set a target price at RMB 15.64, with a corresponding 15x 09E PE. Thanks and Best regards, | 
发表于 2008-11-12 09:15
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