Chemical giant Bohai faces slowdown

Tianjin Bohai Recommendation: Avoid Brokerage: Smith New Court TIANJIN Bohai is one of China's largest producers of marine chemicals. It has significant market shares in its three main products - soda, PVC and caustic soda - all of which have broad applications in downstream industries such as textiles, paper-making, plastics and chemicals.

Given the current economic climate and the drive to rein in growth, a slowdown could well be in store for the company. Although demand for basic chemicals in China will expand rapidly in the long term, complications associated with deregulation are casting doubt on the sector at the moment.

These complications are not adequately reflected in Tianjin Bohai's 1994 prices-earnings ratio of 12.7 times, particularly compared with Yizheng, the latest H-share issue, and given the expectation of a number of high-quality issuers among the second batch.

HKCB Bank Holding Recommendation: Buy Brokerage: Smith New Court HONG KONG Chinese Bank Holdings posted a 130 per cent net profit growth to $237.1 million last year. The brokerage forecasts earnings recovery of 40 per cent this year and 16 per cent in 1995 on the back of continued growth at the bank and new earnings from Lippo Asia.

Deposits grew an estimated 50 per cent, although minimal disclosure inhibits detailed assessment. With about $600 million cash, after purchasing Lippo Asia, the prospect of a more significant financial-services acquisition remains strong.

The tie-up with China Resources, which has a 35 per cent share in Hong Kong Chinese Bank, is good for the bank's local operations and mainland activities. On 13.3 times 1995 earnings the stock is not cheap, but there is scope for earnings enhancing acquisitions and further profit growth in the bank's associate Chinese referrals.

Shanghai Petrochemical Recommendation: Buy Brokerage: Seapower Securities SHANGHAI Petrochemical posted last year's final results with net profit of 870 million yuan (HK$774 million), representing a 96 per cent leap over the previous year. The results were ahead of the prospectus forecast but were slightly disappointing for the market, which was overwhelmed by the encouraging interim results for the first half-year.

Looking ahead, Shanghai Petrochemical will be able to maintain a mild growth by increasing production volume and introducing high-profit-margin downstream products.

Assuming a 13.6 per cent growth in net profits this year, the company is trading at a prospective price-earnings ratio of 14.5 times and is an attractive long-term buy.

National Mutual Recommendation: Sell Brokerage: Sun Hung Kai Securities NATIONAL Mutual Asia is expected to record a 35 per cent rise in this financial year's interim earnings to $320 million, benefiting from a strong Asian financial market last year.

However, the company's outlook continues to be clouded by the defection of a large number of sales agents to its fast-rising rival, Top Glory Insurance, the third largest life insurance company in Hong Kong.

Capitalising on the financial clout and connections of its major shareholders, Top Glory is also expected to have an advantage over National Mutual in the mainland, the growth market for insurance companies.

Coupled with a stagnant sales force, growth at National Mutual is expected to be flat in the next couple of years. Earnings are projected to grow 20 per cent to $620 million this year, but next year a low increase to $651 million is expected.

M C Packaging Recommendation: Buy Brokerage: Schroder Securities MC PACKAGING, a manufacturer of two-and three-piece cans and plastic bottles and containers, is expected to be negatively affected by China's recently launched value-added tax and the unified exchange rate.

The brokerage has revised its earnings forecast downwards to $117.8 million this year. Growth next year will depend on contributions from the joint venture. The counter remains a play on consumer spending in China. The brokerage recommends MC Packaging's stock as a good long-term buy.