HaiKe Chemical

SPECULATIVE BUY

30/09/2009 Robert Tyerman

China-based HaiKe Chemical Group is ‘cautiously optimistic’ after turning a £595,000 loss into £6.8m pre-tax profits at the interim.

Headquartered in Donying City, Shandong Province, AIM-quoted HaiKe suffered an 18% fall in turnover to £167m in the six months to June, as a result of slowing industrial demand and falling sale prices for diesel. But the company managed to move into the black, helped by a series of domestic price rises for petrochemicals.

HaiKe, which aims to bring a second refinery into production when its £120m, 49%-owned Ruilin refinery comes on stream early next year, argues it is seeing some benefits from the Beijing government’s reflation drive. Chief finance officer Nick Su says demand from domestic cement, glass and carmakers for the company’s chlor-alkali products grew during the first half year.

Longer term, increasing car ownership in China should stimulate demand for HaiKe’s refined petrol. The company is also moving into cleaner energy. Analysts see full-year pre-tax profits of £9.3m, with £22m on the cards for 2010. At 53.5p, against a 12-month high of 77.5p and a low of 18p, HaiKe shares offer a punt on China’s economic recovery.

Tags: AIM, Emerging markets, Growth Stocks

Sector: Oil & Gas Producers

Companies: HaiKe Chemical

Market cap: £50.5m

PE Forecast: 2.6

Share price: 53.5p