Dinglong: Color Chemical Toner Makes the Highlight for 2013

On January 26,  Hubei Dinglong Chemical Co.,Ltd released its earning pre-annunciation for 2012. Net profits owned by the listed company amounts to RMB60.3487-68.2202 million, posting a rise of 15% – 30% from a year earlier. With non-recurring profit and loss deducted, the net profits has risen by 16%-19% from 2011.

Dinglong’s growth in 2012 chiefly derived from its traditional core business, Charge Control Agent (CCA). It is predicted that an increase of 20% in the sales of Charge Control Agent(CCA)would be achieved. The gross margin, on the other hand, is expected to decrease due to price pressure and increased depreciation expenses.

Analysts hold that the main reason for the slightly-lower-than-expected results is the implementation of equity incentive expense which led to the increase of administrative expenses. Besides, analysts think the calcium hypochlorite business would slacken because of the industry downturn.

According to related analysis, Dinlong’s spotlight will be entirely diverted to chemical (polymerized) color toner. First, the capacity utilization has steadily increased. In September, 2012, the company launched its chemical color toner production line, which is expected to reach an annual capacity of 1,500 tons. It is learnt that the capacity utilization of color polymerized toner has been stably increasing since the operation and an output of 25-30t per month by the end of 2012 was estimated, surpassing the BEP (it was estimated that profits can be gained with a monthly output over 10 tons).

Secondly, market development is soundly underway. As per research, clients highly recognize the quality of the company’s color polymerized toner which rivals the competitor Mitsubishi Chemical. As has been revealed by the 3rd quarterly report of 2012, part of the company’s clients have placed orders while some others were in the phase of evaluation.

Analysts maintain the profit forecast for the time being, anticipating that net profits owned by the parent company will be RMB69 million, RMB120 million and RMB168 million in 2012, 2013 and 2014 respectively, showing year-on-year growths of 33%, 74%,40%. The fully diluted EPS were 0.51yuan, 0.89yuan and 1.25yuan, preserving buy ratings.

Meanwhile, analysts prompted investors on the risks that it’s impossible to stabilize the output of color polymerization toner. Downstream customers extending and order signing are lower than expected. And the entry of potential entrants results in excessive price competition and shrinking earnings.

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