This report is published by Research Dynamics, an independent research boutique


CPH to undertake expansion at Chemistry division

CPH's Chemistry Division, Zeochem, is set to expand the capacity of two of its molecular sieve product lines to meet the growing demand. The expansion would entail an investment of just over CHF 10mn and will help further consolidate Zeochem's leading technological position in the high-quality molecular sieves market. The expansion of the existing capacities is expected to be completed by mid-2022e.

Expansion in lithium molecular sieves capacity to tap the demand for portable oxygen concentrators

The COVID-19 induced acceleration in respiratory diseases has led to a spike in demand for portable oxygen concentrators. To meet this growing demand, CPH is looking to increase the capacity of lithium molecular sieves at Zeochem's Louisville production plant in the USA. The lithium molecular sieves are used to concentrate medical oxygen and are also required in oxygen production for industrial applications. The total output of the plant will be increased by ~700 tonnes a year by investing into the expansion of additional capacities at the existing facility.

Purmol capacity expansion to tap new and existing growing applications

Purmol, a molecular sieve powder that finds its usage in numerous applications is next on the expansion list. Prumol is useful in preventing bubble formation in polyurethane floor coverings. In addition, Purmol is useful in the new and fast growing area of its application in window technology. Earlier, aluminium spacers were provided together with a molecular sieve in multiple-pane windows to prevent fogging on the panes, now plastic spacers are gaining prominence. Plastic spacer provides better thermal insulation, and the molecular sieve desiccant can be used in powder form into the plastic. The company is looking to increase the annual capacity of Purmol by ~800 tonnes by installing a new calciner at its Zvornik site in Bosnia & Herzegovina.

Investment program

CPH stated that the necessary investments for the two expansion projects are expected to amount to just over CHF 10 million until operations are up and running by mid-2022. Assuming an even split, this adds CHF 5 million for 2H2021E and CHF 5 million for 1H2022E. Our current forecasts are for CAPEX amounts of CHF 40 million and CHF 30 million for this year and next, respectively. Ahead of the half-year 2021E results due 21 July, we are leaving our forecasts unchanged.

Valuation and conclusion

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 91.3 per share, which is similar to our previous target price (CHF 91.3), implying an upside of ~33.5% from current levels. For relative valuation, since the Group operates in three entirely different divisions, we compare each of CPH's divisions with different sets of relevant industry peers. We have employed three parameters - EV/EBITDA, P/S and P/E - to analyze the relative valuation of the Group. CPH currently trades at a P/S multiple of 0.9x (FY2021E), a significant 36% discount to the weighted average multiple of division peers.