Summary: We visited Changtian Plastic & Chemical Ltd’s (CT) plant recently. CT is in the business of manufacturing and selling adhesive tapes, release papers, BOPA film and 2-A2MPS. CT’s customers are diverse, ranging from automotive to packaging. Management believes there is growth potential for BOPA film due to an increase in preference for convenience foods as well as greater awareness of food safety among PRC consumers. Management is also positive on 2-A2MPS contribution as it is widely used in various industries. CT is spending RMB222m of its IPO proceeds to install an additional BOPA film and 2-A2MPS production line each, doubling capacity for both, as well as a new production line for a new product, UV cured release film. Production is expected to commence in 3Q08 for the BOPA film line and in 4Q08 for the 2-A2MPS and UV cured release film lines. We do not have a rating on this stock.
Growing demand for its products.
We visited Changtian Plastic & Chemical Ltd’s (CT) plant recently. CT is in the business of manufacturing and selling adhesive tapes, release papers, BOPA film and 2-A2MPS. CT’s adhesive tapes are sold to its customers in industries from automotive and packaging. The release papers are sold to clients in the hygiene and fibre composites sectors. BOPA film is used as a packaging material in industries such as food and beverage. 2-A2MPS is a raw material used in textile dyes and oil and gas extraction.
The rising affluence of PRC consumers has led to an increase in preference for convenience foods. Greater awareness of food safety also led to a preference for packaging materials that will ensure freshness while preserving the quality of food products. Hence, management believes there is growth potential for BOPA film. Management is also positive on 2-A2MPS contribution going forward as it is a widely used raw material in various industries and that demand would come from continued production and exploration of oil reserves in the PRC as well as increasing industrialization.
Focus on growth segments. As at 3Q07, CT’s gross profit margins for its 2-A2MPS, adhesive tapes, BOPA film and release papers were 57.8%, 37.3%, 32.9% and 30.8%, respectively. As at 3Q07, revenue contributions were 7.9% (2-2AMPS), 44.3% (adhesive tapes), 27.7% (BOPA film) and 20.1% (release papers). Focusing on higher growth segments, CT expects revenue contribution by product mix (post the expansion in production capacity) to be 35% BOPA film, 30% adhesive tapes, 25% release papers and 10% 2-A2MPS.
Boosting production capacity. CT is spending RMB129m to install an additional BOPA film production line, which is expected to double production capacity to 10,800 tons per year. CT expects production to commence in 3Q08. It is also spending RMB30m to install an additional 2-A2MPS production line, which is expected to double production capacity to 3,000 tons per annum. Production is expected to commence in 4Q08. In addition, RMB63m would be spent on installing a production line for a new product, UV cured release film, which is expected to have a production capacity of 3,000 tons per annum. Production is expected to commence in 4Q08. The above expenditures would be funded by their IPO proceeds. We do not have a rating on this stock currently.
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