China Sky upgraded to Buy on M&A - DBS

18 October 2006 07:41  [Source: ICIS news]

SINGAPORE (ICIS news)--China Sky Chemical Fibre shares have been upgraded to a Buy rating with a 12-month price target of S$1.65 ($1.05/€0.84) due to the successful execution of its production enhancement and acquisition plans, DBS Group Research said in a report issued on Tuesday.

DBS previously rated the stock as a Hold with a S$1.20 price target. At 14:30 Singapore time (06:30 GMT) on Wednesday, China Sky shares were up 1.5% at S$1.32.

China Sky’s successful execution of its production enhancement plans to increase its production capacity from 39,000 tonnes/year to 72,000 tonnes/year has dispelled fears on the adverse impact of a prolonged disruption to its manufacturing facilities, DBS analysts Kris Yap and Germaine Khong explained in a joint report.

Furthermore, China Sky was an efficient producer of high quality nylon fibres and benefited from strong domestic demands as well as the widening of the China market share in the nylon export market, they added.

DBS said it was raising its China Sky earnings forecast by 10.3% to CNY489.8m for 2006 and by 7.6% to CNY640.6m for 2007 as demand for nylon in China has been robust and is expected to rise in tandem with China’s Gross Domestic Product.

However, it expressed concern that earnings for the current quarter may be affected by a partial two-week maintenance plant shutdown during the period.

China Sky has started construction for the new production facility for its two new products, air texture yarn (ATY) and drawn texture yarn (DTY), which are to be launched in the first quarter of next year.

ATY and DTY will be produced using two production lines with a total capacity of 16,000 tonnes/year.

DBS added that it is projecting the new products to contribute about 7% to China Sky’s 2007 net earnings.

By: Gina Myung
+65 6780 4359

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