Sichuan Chemical - which hopes to raise about US$55 million from its listing next month - is anticipating growth of 17 per cent in the next year, driven by a recovery in urea prices, according to a research report. The report - issued by BOC International Holdings, an affiliate of China Development Finance which is co-sponsoring the flotation - said the rebound in urea stemmed from the mainland's suspension of imports since April last year. The price of urea - a fertiliser - was expected to rise to 1,450 yuan (about HK$1,359) a tonne from 1,200 yuan, it said. The firm's gross profit margin, however, is expected to be squeezed to 27 per cent from 30.6 per cent due to a 15 per cent increase in electricity and water prices, the report said. The company's gross margin has been under pressure recently, sliding from 32.6 per cent in 1995 to 30.6 per cent last year, while net profit fell marginally from 141.55 million yuan in 1996 to 141.51 million yuan last year. While there was concern about the impact on the domestic fertiliser industry should the mainland join the World Trade Organisation, the report said large producers such as Sichuan Chemical could be able to compete with foreign rivals due to their low production costs. The company has enjoyed low production costs thanks to a government plan to support the industry. This made it possible for the company to enjoy a discount of 21 per cent on prices of natural gas and 31 per cent on electricity last year. The discounts are subject to negotiation every year. Natural gas accounted for about 56 per cent of production costs. The report estimated the company's net profit this year would increase by 17.8 per cent to 167 million yuan. It said profit growth would be about 13 per cent and 33 per cent in the next two years. Listing proceeds would be used to fund expansion plans and the report estimated the expansion of melamine, hydrogen peroxide and potassium sulphate would contribute about 90 million yuan towards annual profit by 2000. Sichuan Chemical plans to sell 210 million shares, or about 38 per cent of its enlarged issued share capital. About 90 per cent of the offer is earmarked for international placement and the remainder for public offer.