When automotive compounder China XD Plastics Co. Ltd. became the first Chinese plastics materials company listed on a U.S. stock exchange back in 2009, it had high hopes for U.S. investors to recognize its value.
Since then, the company has been riding with China's automotive boom and has reflected that growth in its topline and bottom line performance. It has expanded its capacity from 70,000 metric tons to 390,000 tons and is currently building another 300,000-ton-per-year plant.
However, the company doesn't feel like it is getting investors' love that it deserves.
In a recent earning call, CFO Taylor Zhang said “the extremely depressed valuation is not only a concern for us but also frustration.” He was responding to Morgan Stanley analyst Matthew Larson's comment that XD evaluation is “at a shockingly low” level compared to its counterparts listed on Chinese stock exchanges based on earnings multiple, price to revenue and “any metrics you want to use,” even after the recent China stock market crash.
Zhang said the company has made repeated efforts to change its stock status including bringing in reputable institutional investors and switching to large providers, but only to little avail.
“[We] just keep our heads down and work on the sentimental, growth business,” he said.
“In our opinion, the valuation cannot be depressed forever for a company like us which we obviously do not deserve.”
Zhang added that the company has stepped up communications with the investment community, including attending investment conferences and conducting non-deal roadshows.
On the business side, the company plans to launch next year phase one of its 300,000-ton Sichuan production base, which will add 100,000 metric tons of capacity.
It's also ramping up capacity of its Dubai project — which Zhang calls the “crown jewel” of the business — to 18,700 tons of high-end materials by the end of this year.
The Harbin-based company posted flat year-over-year numbers for the second quarter — 0.5 percent growth on sales and a 1.5 percent decrease of gross profit.
Chairman Han Jie acknowledged the weak market conditions in China but also noted progress of its higher-end products outside China.
“Our focus on high-end manufacturing led to strong sales outside of our traditional sales base in China, which coupled with our disciplined working capital management, resulted in a 14 percent increase in EBITDA for the quarter.”
The company reaffirmed its full year sales guidance of $960 million to $1.06 billion.