VA/VE prices gradually fell after their previous surge
Vitamin A/vitamin E (VA/VE) price swings are the most important determinant of NHU'searnings. The VA price surged in 2016 (244% at one point) due to environmentalprotection issues and tight raw material supply, then gradually declined, with capacityramping up and no significant downstream demand growth. The VA price is nowc24% lower than its peak level in 2016. The VE price has followed a similar trend – it isnow 26% lower than its 2016 peak.
Near-term EPS dilution due to methionine project
NHU recently announced its private placement plan for a 250,000 tonne/yearmethionine project, which requires an investment of Rmb5.36bn. The company plansto raise Rmb4.9bn, with new shares accounting for 24.7% of its total shares. With aconstruction period of four years, the project has a payback period of 9.6 years andafter-tax IRR of 14.76%. We believe NHU's EPS will be diluted in the short term, giventhe hefty project investment an