A common feature among the stock ideas is (excessive) balance sheet strength. Sanjiang Fine Chemicals $2198.hk is a notable exception to that. What are your thoughts on the balance sheet there, Diego?
In this case, Sanjiang is the complete opposite to TianjinDev, which is awash with cash.
At this particular point in time, it does seem excessively leveraged. However, it 1) just completed an investment of 5x its current mkt cap and 2) the petrochemical cycle is (was? Don’t know) in the worst moment of at least a decade.
Mid-cycle, a naphtha cracker usually makes EBITDA of 300 to 550 USD/t, considering tonnes of only olefins (let’s just ignore by-products to simplify the calculations). At 1.3bn t of ethylene and 350 USD/t, we get an EBITDA of RMB 3.3bn. At that point, it doesn’t seem overly leveraged anymore. Maintenance capex should be minimal since the plant is brand new - it should have FCF larger than net profit in the next years -, and I’m also ignoring FCF of all the old facilities.
If we look at net debt per ton, it is probably less leveraged than Braskem, for example (which is still investment grade). If I were a bank lending money, I would have no problem with this profile, despite the ugly rear view mirror.
It also depends on how you consider the related parties debt. It increased a lot in 2024, but not all of that was (just) the controlling shareholder helping a struggling sub. Inventories of raw materials (i.e. naphtha) also increased a lot, which one should deduct from related parties payables, which is a refinery selling naphtha to them - and happens to be owned by the same controlling shareholder.
I think in a couple of years no one will consider Sanjiang over leveraged.
A common feature among the stock ideas is (excessive) balance sheet strength. Sanjiang Fine Chemicals $2198.hk is a notable exception to that. What are your thoughts on the balance sheet there, Diego?
In this case, Sanjiang is the complete opposite to TianjinDev, which is awash with cash.
At this particular point in time, it does seem excessively leveraged. However, it 1) just completed an investment of 5x its current mkt cap and 2) the petrochemical cycle is (was? Don’t know) in the worst moment of at least a decade.
Mid-cycle, a naphtha cracker usually makes EBITDA of 300 to 550 USD/t, considering tonnes of only olefins (let’s just ignore by-products to simplify the calculations). At 1.3bn t of ethylene and 350 USD/t, we get an EBITDA of RMB 3.3bn. At that point, it doesn’t seem overly leveraged anymore. Maintenance capex should be minimal since the plant is brand new - it should have FCF larger than net profit in the next years -, and I’m also ignoring FCF of all the old facilities.
If we look at net debt per ton, it is probably less leveraged than Braskem, for example (which is still investment grade). If I were a bank lending money, I would have no problem with this profile, despite the ugly rear view mirror.
It also depends on how you consider the related parties debt. It increased a lot in 2024, but not all of that was (just) the controlling shareholder helping a struggling sub. Inventories of raw materials (i.e. naphtha) also increased a lot, which one should deduct from related parties payables, which is a refinery selling naphtha to them - and happens to be owned by the same controlling shareholder.
I think in a couple of years no one will consider Sanjiang over leveraged.
Very insightful! Tx!