CIMB-GK report:

We expect SP Chemicals to report sterling 4Q06 EPS growth of 61%yoy as its ASPs remained firm against earlier anticipation of a decline. FY07 is looking brighter, on expected steady demand with some new customers locked in. A new capex budget of Rmb280m for FY08 should increase its capacity by 50% in 1Q08. We have raised our FY06-08 EPS forecasts by 4-72%, after assuming higher ASP assumptions and margins, and accretion from the aggressive 2008 expansion. Valuations are compelling at 4.8x CY07 P/E and 2.7x CY08 P/Es, against a projected 3-year EPS CAGR of 42%.

SP Chemicals warrants a higher valuation and we have raised our target price to $1.08 (6.5x CY07 P/E) from $0.80 (5.5x CY07 P/E). This still puts it at a 50% discount to the13x commanded by another well-managed company, Jiutian Chemical.

"We remain impressed with management, which has put in place at least one new growth driver every year," said analyst Kerryn Tay from CIMB-GK.

"The company has also earned a track record of resilient margins and good execution," she added.

Tay said that 2007 is "looking brighter", as SP Chemicals could potentially supply chlorine to seven new customers and lower oil prices should help cut cost.