SPORTS APPAREL made of fabric with moisture & air breath-ability functions are retailing for three times the price of the traditional cotton shirt of the same brand.
High color fastness, combustion-resist, moisture absorbent, and even UV protection is the order of the day for fashion labels seeking to wow consumers.
And it is chemical fiber companies that are giving the fashion apparel industry a new lease of life with endless innovations that enhance quality of life for the end consumer.
We all know natural fabrics come from animal or plant fiber, but do you ever wonder where the chemical fibers widely used in fashion apparel, upholstery, bedding and synthetic leather come from?
Ingenious technological innovations often have their roots in nature.
Using petroleum by-products as feedstock, C&G Industrial spins fibers not unlike the way spiders spin silk.
The upstream supplier of raw materials for chemical fiber and textile manufacturers specializes in:
- Polyester chips – granules made from coal and petroleum by-products
- Short fibers – chips melted in what is known as a spinneret (designed after a spider’s silk spinning organ) come out as fiber strands; and
- Yarns – threads twisted from several strands of fibers
In short, polyester chips are used to make polyester fibers, which are in turn used to make yarns.
Given the complexities of manufacturing synthetic textiles, C&G Industrial is unique in integrating these middle three stages of polyester’s supply chain. 
Three-quarters of chemical fibers produced globally in 2007 are polyesters, which C&G Industrial has its niche in.
Prospects appear bright for the long term, as China’s polyester market is expected to grow 8.3% a year between 2006 and 2010.
Among the myriad of polyester inputs that C&G Industrial makes, its two core products are alkali soluble PET chips and compact combed yarns.
These command relatively higher gross margins of 36.7% and 27.6% respectively. They also contribute the most to top line – 28.9% and 17.5% respectively.
Chemical fibers are either purely synthesized from chemicals (synthetic fibers) or produced by synthesizing plant cellulose such as wood with chemicals (artificial fibers).
China produced 56% of the world’s chemical fibers in 2007, so it is no surprise there’s a handful of chemical fiber plays among S-shares.
What are the other chemical fiber manufacturers?
Well, China Sky specializes in nylon yarns, FibreChem in polyester differential fibers, Hong Wei in synthetic cotton, Li Heng in nylon yarn and Sino Techfibre in micro-fiber synthetic leather.
Among them, C&G Industrial stands out as a stock trading at a 24% discount to net asset value. The others do not come as cheap.
| Stock Price S$ | Mkt Cap S$mln | Sales S$mln | NTA S$mln | Mkt Cap / NTA | |
| C&G INDUSTRIAL | $0.245 | 114.7 | 172.2 | 150.8 | 76% |
| CHINA SKY | $0.825 | 654.6 | 449.7 | 522.3 | 125% |
| FIBRECHEM | $0.540 | 487.8 | 323.5 | 328.7 | 148% |
| HONGWEI | $0.270 | 60.8 | 62.6 | 52.9 | 115% |
| SINO TECHFIBRE | $0.530 | 492.9 | 250.7 | 326.1 | 151% |
| LI HENG | $0.520 | 884.0 | 334.2 | 366.5 | 241% |
Broker | Target | Valuation Basis | Report date |
CIMB-GK | $0.78 | 7.4X CY09 PE | 26 Feb 2008 |
Kim Eng | $0.66 | DCF, wacc 13.3%; | 26 Feb 2008 |
Buy recommendations by brokers on C&G Industrial | |||
Listed on SGX with a market cap of S$115 million, C&G Industrial sold Rmb 875.9 million worth of raw materials to chemical fiber and textile manufacturers in 2007.
At net profit of Rmb 164.2 million (S$32.8 million) and healthy net margins of 18.7%,
FY08 PE is a mere 3.4X.
Based on last week’s closing price of 24.5 cents, the stock is trading at a 66% discount to consensus broker target of 72 cents.
