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Tuesday, 11 April 2017

Sinostar PEC

12/4/2017
Accumulate - tp 0.36
  1. Attractive valuation - PE 7.2, EV/EBITDA 1.161
  2. Decent Dividend yield 2.44% and consistent
  3. Favorable petrochemical outlook in PRC - shown in Revenues and Earnings
  4. Strong fundamentals - low debt, positive cash flow, high cash holdings
Metrics
  • Market Cap S$131.2m, Float 45.91%
  • Last done (as of 12/4/2017) S$0.205
  • PE 7.2, PB 1.023, EV/EBITDA 1.161
  • Total Debt to Equity 0.05%
  • Dividend yield 2.44%, just started paying, consistent
  • ROE 15.5%, ROA 8.8%
Operations
  • Downstream petrochemical products - Propylene, LPG, Polypropylene
  • Situated within the Zhongyuan Oilfield—one of PRC’s largest oilfields
    • Near populous and industrialised provinces such as Shandong, Henan, Anhui, Jiangsu, Shaanxi, Hebei and Zhejiang
  • Transportation and Logistics - Subsidiary Dongming Changshun Transport Company Ltd
    • Recent acquisition in 2015 - positive contribution that year
  • Annual capacity to process 550,000 tonnes of raw LPG and is able to further process part of generated propylene into 50,000 tonnes of polypropylene annually
  • Strategic affiliate - Shandong Dongming Petrochem Group, China’s largest independent oil refiner with primary processing capacity of 15 million tons per year
Investment thesis
  • "We believe that the demand for LPG is set to rise, buoyed by robust demand from the residential sector" - annual report 2015
  • "The Chinese government is looking to ease policies further in light of the slowdown in the market of which likewise extend to invest and further the growth of the petrochemical industry of the state" - annual report 2015
  • Turnaround play - Divested from previous operations to specialize in Petrochemical segment. Was loss making but recently turned profitable




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