China Tracker - Details for Keyuan Petrochemicals (KEYP)

 Keyuan Petrochemicals
 Analyst Coverage
2011-04-01Rodman & RenshawDowngradeUnder Reviewn/a

In light of today's announcement and a halt in KEYP trading, we are placing our Market Outperform/Speculative Risk rating and $7 price target under review pending the resolution of the aforementioned issues and filing of the Form 10-K for FY10. We will continue to monitor company's progress in addressing these issues and adjust our rating accordingly.

2011-02-09Rodman & RenshawInitiationOutperform$7.00

We are initiating coverage on Keyuan Petrochemicals, Inc (KEYP) with a Market Outperform/Speculative Risk rating and a price target of $7. Keyuan is an emerging provider of primary and intermediate petrochemicals utilized in the production of resins, plastics, chemical fiber, coatings, paints and pesticides for automotive, consumer, real estate and agricultural end markets. A relative newcomer to the petrochemical industry, the company is quickly establishing itself as a major player in the sector through aggressive capacity expansion and commercialization of proprietary patented technology that enables cost-effective production of aromatics from cheaper and more readily available heavy oil instead of traditionally used naphtha. Trading at 9x FY10 fully diluted earnings the stock is relatively inexpensive given the company's strong revenue growth and projected capacity expansion to over 1 million MT by the end of 2012. Overall, we believe Keyuan stands to benefit from the long-term economic growth in China which will fuel the demand for a variety of primary and intermediate petrochemicals.

Management guides for strong revenue growth in both FY10 and FY11, expecting revenues and net income of approximately $550 million and $36.3 million, respectively, on 660,000 MT sales in FY10 and revenues of $650.5 million on projected sales of 740,000 MT in FY11. We forecast revenues and adjusted net income of $550.1 million and $35.2 million (after preferred dividends) for FY10 and $654.1 million and $35.6 million in FY11, respectively, which translates to fully diluted adjusted EPS of $0.59 (including the effect of consumption tax rebate) in FY10 and $0.52 in FY11. We view the stock's present valuation as attractive and recommend investors accumulate positions at current level.

We initiate on Keyuan with a Market Outperform/Speculative Risk rating and target price of $7, implying a 37% upside to the current price. Keyuan is currently trading at 9x our FY10 fully diluted EPS estimate of $0.59 (including the effect of consumption tax rebate) and 10x our FY11 fully diluted EPS estimate of $0.52. These multiples are below the current FY10 and FY11 industry averages of 18x and 14x for the U.S.- listed petrochemical companies and 26x and 19x for the Asia-listed petrochemical peer group. On EV/EBITDA basis, the stock is currently valued at 6.3x our FY11 forecasts. We believe the current valuation does not fully reflect the company's technological advantages, rapid historical and projected revenue growth, increasing capacity and strong demand for its products. Our price target of $7 is based on the shares attaining a relatively conservative P/E level of 13x our FY11 fully diluted EPS estimate and 8x FY11 EV/EBITDA multiple.

Oil & Gas
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DETAILS: Safety/Risk Model for KEYP
Current Price:  n/a
F10k Day (2010-05-07): -100.00%$4.50
2010 Close: -100.00%$4.34
2011 Close: -100.00%$1.60
High (2012-02-15): -100.00%$2.20
Low (2012-09-06): -100.00%$0.50
Market Capitalization: n/a
Total Shares: 57.95 mill
Float: n/a
Avg Volume: n/a
Short Interest: 27.30 k
Short Ratio: 0.40%n/a
Last Quarter: 2010-09-30
Revenue (MRQ): 151.34 mill
Net Income (MRQ): 7.89 mill
Op. Cash Flow (MRQ): -3.97 mill
all financial data provided without warranty