Fabchem: insider buying for an explosive return to business?

this stock has consistent insider buying by Mr Bao. (XFN-ASIA) - While many economists have been worrying about a possible post-Olympics slump in China, Singapore-listed Fabchem may be one company that is glad the games are over. The Shandong-based explosive producer\'s activities were severely curtailed by tightened safety and security measures in the run-up to last month\'s sporting events, and it is now looking forward to recovering some of its lost profits. On July 10, the port authority in Qingdao imposed a blanket ban on the delivery of all dangerous products to and from Beijing and Qingdao from July 25 to September 31, and also blocked transit to Tianjin, Shanghai, Qinhuangdao and Shenyang until the end of August. On top of all that, the authorities in Shandong rationed the use of electricity in order to guarantee that the Olympics stayed lit, forcing one of Fabchem\'s subsidiaries to close its doors. The company had no choice but to issue a profit warning. \"As we are in the commercial explosives industry, we are highly regulated and the authorities wanted to ensure that there was no chance of any sort of accident happening during the period,\" Kwek Wei Lee, Fabchem\'s finance manager, told XFN-Asia. DMG said in a research note this week that even though the company\'s Olympic struggles were well-known in advance, there is still likely to be pressure on the company\'s shares. \"We had earlier highlighted the adverse impact from the Olympics, but believe that the profit warning by the company will still pressure the company\'s stock price, at least in the near term,\" it said. After the profit warning was announced on September 8, Fabchem\'s share price plunged 12 pct on the following day to 0.33 sgd. Kwek said that the impact of the Games was a one-off, and that things should get better later in the year. He said with the exception of the Olympic Games period, the company\'s revenues and profits have been increasing every month and every quarter. From April to June this year, the company\'s net profits rose 31.1 pct year on year to 11.568 mln yuan. The company also expects to start reaping the benefits of its acquisition of Hebei Yinguang, a producer of ammonium nitrate, a raw material used in the manufacture of explosives. The deal is subject to the approval of an extraordinary general meeting set for September 29. The company\'s explosives, initiators and detonators have been used to clear the way for the world\'s biggest hydroelectric project at the Three Gorges in central China\'s Hubei province, and to blast open mines owned by the Shenhua Group, the country\'s biggest coal producer. China\'s voracious quest for resources in its remote western regions is also creating new opportunities. \"We foresee there will be more business opportunities from the mining activities in the west due to the government\'s move to develop the western part of China,\" Kwek said. Export sales accounted for around 40-50 pct of the total over the past few years, he said. \"Our overseas competitors are mainly the world\'s two largest players, Orica Limited and Dyno Nobel,\" Kwek said. Orica is already one of Fabchem\'s major customers, while Dyno Nobel is one of its major shareholders, with a 29.9 pct stake. \"So they are both our competitors and friends,\" Kwek noted. Safety, naturally, is the company\'s biggest concern. \"The utmost concern and challenge for any commercial explosives company is safety,\" he said. \"Our challenge is to ensure that our manufacturing process is of a high safety standard in accordance with the country\'s laws and regulations as well as international standards,\" he said. The tougher standards could actually be of benefit to Fabchem, which is seeking to boost its market share. \"The commercial explosives industry is a very highly regulated industry, foreign involvement is restricted and there are high barriers to entry,\" said Kwek. \"The government has also ceased the issuance of new licences to enterprises and we are now in the consolidation stage,\" he added. He said that Fabchem serves as a \"one-stop supplier\" for its customers by providing products like detonators, boosters as well as a wide range of different commercial explosives. Right now, the company is just looking forward to getting back on track after its big Olympic blip. \"I won\'t say we will have a pretty quick recovery after September, but our sales will definitely normalize from October onwards,\" Kwek said. (1 usd = 6.8 yuan, 1.43 sgd) david.stanway@xinhuafinance.com