AmFraser starts SunVic Chemical (A7S.SG) at Buy with a $1.02 fair value. It says there is diversified and growing demand for AA and AE for a wide range of common consumer goods.
“The wide demand base reduces the impact if a certain end-product enters a downtrend.” The house notes favourable cost of raw materials as the price of propylene has largely remained stable.
The house also says the group’s large scale AA and AE production (205,000 tonnes and 250,000 tonnes per annum, respectively) allows them to enjoy economies-of-scale such as lower unit cost and better bargaining power from raw materials suppliers. It says the group’s venture upstream into propylene makes sense, and their new cracking plant producing propylene and other petrochemical products is expected to be operational by end 1Q 2011.
The stock is up 3.8% at $0.685. On technicals, AmFraser says $0.70 is an obvious resistance, but “there is a good chance that the stock will break above this in the immediate term.”
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