Chemical fibres can generally be classified into synthetic fibres and man-made fibres.Synthetic fibres such as nylon and polyester are manufactured by the processing ofpetrochemical products through a series of chemical and physical treatments. Man-made fibres are manufactured using mainly cellulose materials from plants such aswood and bamboo through a series of chemical and mechanical treatments; someexamples would be rayon and acetate.

Natural fibres such as wool, silk and cotton are derived from naturally occurringanimal and plant fibres. Unlike natural fibres whose properties are inherent in nature,chemical fibres can be customized, in terms of its composition and structure, throughman-made processes to enhance the desired properties hence rendering chemicalfibres useful for many different purposes and widely used for commercial andindustrial applications.

For the chemical fibre companies in the People’s Republic of China (“PRC”), themain bulk of their customers consist of textile and fabric manufacturers. The demandfor chemical fibres would then be dependent on ferment manufacturers, who are themain customers of textile and fabric manufacturers.
The textile industry in China is facing strong headwinds currently due to the egative wide spread effects of the sub-prime mortgage crisis, the rapid appreciation of theYuan since early this year, cost increases and trade restrictions from the US and EU.

Hence, we are calling for a NEUTRAL stance on the textile and chemical fibreindustry and initiate coverage with a HOLD for both China Sky (fair value estimate:S$0.35) and LiHeng (fair value estimate: S$0.325).