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By Jing Zefei from the Institute of Shenyinwanguo Securities
1. strong and persistent pursuit of strategic transition With Chinese entrance into WTO, international trade industry is gradually developing from monopoly to full competition. Under this context, Sinochem International, as the leader of the chemicals trade, chose a strategy of running diversified businesses and started the strategic transition from a traditional trader to a comprehensive service provider of chemicals. The strategic plan of Sinochem International is: while maintaining the advantage of chemicals trade and distribution, to extend towards the upstream which is fine chemicals production and R&D, and the downstream as well which is chemicals logistic allocation, to establish the company's own production entity, an advanced industrial platform and the industrial chain of vertical integrity, so that they could consolidate and expand their advantageous status in the chemical industry. The change of the company's name on Oct. 11th also foretold the initial success of its strategic transition. 2. chemical trade enjoying a stable scale and increasing ability of profit earning Firstly, the domestic chemicals demand is still waiting to meet by means of international trade. At present, as the third largest oil and chemicals consumer in the world, China is predicted to experience a growth of the demand for synthetic resin and synthetic fiber at the rate from 12% to 14% in the next several years. However, due to the insufficiency of domestic enterprises in the products breed, model and the entire productivity, the gap between supply and demand is very large. Now, still over 50% of the synthetic resin, synthetic rubber and synthetic fiber monomer are imported, while 60% of the productive value of petrochemical industry is realized through circulation. After entering into WTO, China will witness remarkable increase of the demand for chemicals distribution and logistics services, which still waits to be enriched in the industrial chain, thusly leaving relatively large spaces for Sinochem International in the chemicals distribution market. As one of the largest and most powerful comprehensive service providers chemicals trade, Sinochem International has built good reputation for the past several decades and has accumulated strong competitive edge in trade and distribution, such as scientific and regular risk controlling system, widespread marketing network across the globe, stable suppliers and clients, as well as large scale of purchase, all of which give full support to the company in keeping its status as the leader in the chemical trade sector. Secondly, the export of metallurgical coal is an important engine having driven the increase of business performance of the company in 2004. With the world economy gradually resumed, foreign iron & steel enterprises and other metallurgical coal users are in urgent need of Chinese metallurgical coal, dramatic increase of the demand for which caused its price jumping up from US$ 160 in the end of 2003 to US$ 380 during the first half of 2004. References: statistics from the Customs and data collected by the Institute of Shenyinwanguo Securities
Under the pressure from EU, during the latter half of 2004, Ministry of Commerce newly added 4 million tons of quotas of metallurgical coal, and the price of metallurgical coal in the international market showed obvious decline, for instance, the CFA price for export has sled from the point as high as US$ 400 to the current point in-between US$ 220 to 240. So, the growth rate of business performance of the company in the next half year will slow down, though the export of metallurgical coal is still going to attract most attention in 2004. In 2005, the great uncertainty of the quota and price of metallurgical coal may drag down the company's business performance a little, which is still expected to gain substantial growth in 2006 with the all-round running of fine chemicals project such as PTMEG and ABS in 2005. Thirdly, chemicals logistics market is enjoying huge demand
When it comes to the chemicals logistics, Sinochem International plans to, through making investment in logistics facilities and integrating logistics resources, to provide big and medium sized enterprises of chemical production and trade in the country with professional logistics services, to develop, in some links, into the pioneer of the Chinese chemicals logistics industry, and to turn logistics into the new source of profits of the company step by step in the future. In the next three years, the company's income from shipment business is expected to make an average 20% to 30% of increase per year. Here are three reasons: for the first, the transport availability will maintain an absolute increase with the gradual aggrandizement of the fleet. For the second, the import of product oil is still going to maintain speedy growth along with Chinese chemicals trade going up stably. For the last, after the mid 2003, the shipping market soon resumed, where the demand of the transport availability exceeded the supply of that, causing a fast ascend of cost of transport. The oil tank project in Zhoushan in Zhejiang province will be under the spotlight on the stage of the company's business performance. For the recent years, the growth rate Chinese import volume of crude oil has reached 30% to 40% more or less, which should be coordinated by a whole set of chemical logistics facilities, including the oil shipment from regions like central east, tanks transfer before ships arrive domestic seaside or riverside oil gas ports, and the allocation in various inland chemical industrial sectors as well. It is expected that although next year, more than 90% of the company's oil tanks will be used, giving plenty of proofs to the beautiful prospect of the development of the chemical logistics business. Fourthly, chemical industry: the breakthrough point for the pattern of profit earning
Trying to extend to the upstream chemical industry, the company now is having some chemical projects in progress, such as the metallurgical coal production in Shanxi Huanda, R134a in Xian Jinzhu, PTMEG and ABS for fine chemicals. In the first half of 2004, Shanxi Huanda has produced 200000 tons of metallurgical coal, while the project in Xian Jinzhu has also realized remarkable returns. As for other fine chemicals projects, for example, PTMEG is undergoing smooth construction as planned and is expected to realize a output of 20000 in the latter half year, though with much low annual output, no more than 1000 tons. The company adopted the most advanced patented technology of PTMEG as special material for , which is featured with advanced techniques, short technological process no pollution, low investment (only accounting for 50% of that of its kind in Europe and America), low cost (80% of that of traditional ones), and good quality. Further more, the company also guaranteed the integration of producing and selling through entering into the sales alliance of ammonia. The ABS project is going to be formally put into operation in the latter half of 2005. Though the biggest consumer of ABS, China, however only owns a self-offering rate of 30% less. It is predicted that, Chinese demand for ABS by the year of 2005 will exceed 2.3 million tons. But, with the domestic productivity less than 1 million tons, a market gap as high as 1.3 million tons will appear. Along with the strategic transition of the pattern of profit earning, Sinochem International starts to transfer from mainly relying on import & export to running chemical industry, in which, fine chemicals projects will be given top priority. To look from a long run, the entire fine chemicals business is expected to bring most of the profits of the company by 2008, the profit earning level of which will surpass the current trade business. Therefore, whether the fine chemicals projects in 2004 and 2005 will smooth or not bears direct connection with the space for the company's future development and its strategic expansion. Fifthly, the key point of investment: attaching significance to both value and development and promoting the common enhancement of both business performance and stock price
With strong ability of profit earning, excellent growth, reasonable financial structure, and development strategy as well as investment plan, both of which showing the broad view from international perspective of a big company, Sinochem International owns relatively low risk of investment as a whole. Recently, the company's sound situation has been fully showed in the secondary market, with its stock price hitting record high frequently, the increase of which in contrast with SSE index for the year has added up to 100% more. For long, many investors do not place much hope on the international trade sector, which is proved to be wrong by the judgment from the Security analyze circle that, there is no declining industry but declining enterprise. Sinochem International is laying a firm foundation for the sustainable growth of the business performance with its clear positioning of strategy and ever-optimizing business structure, worthy of being placed great hope on. As the representative of domestic listed companies, it is gradually winning the acknowledgment from investors to its value. We regard it as an idea subject to make medium or long term investment in. |
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From:Chinese Security 2004-10-15 |
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