Excerpts from Phillip Securities Research report


Analyst: Chen Guangzhi

China Sunsine: An incredible start for the year

Positives 

China Sunsine

Share price: 
$1.50

Target: 
$1.97

+ High ASP and sales volume extended in 1Q18: In 1Q18, the total sales volume grew 11.7% YoY to 36.5k tonnes, due to the ramp-up in the production of insoluble sulphur and anti-oxidant.

However, it dropped mildly by 5% QoQ as production stopped work for the Chinese Spring Festival.

Meanwhile, overall ASP was still on the upswing, reaching RMB23.2k/tonne in 1Q18 (+34.1% YoY):


Sales vol
(mn tonnes)

1Q18

1Q17

YoY (%)

4Q17

QoQ
(%)

Accelerators

19,907

20,358

-2.2

21,722

-8.4

Insoluble Sulphur

6,212

5,111

21.5

6,010

3.4

Anti-oxidant

10,353

7,181

44.2

10,665

-2.9


Average selling price (RMB/tonne)

1Q18

1Q17

YoY (%)

4Q17

QoQ
(%)

Accelerators

29,387

20,061

46.5

27,511

6.8

Insoluble Sulphur

11,719

10,448

12.2

11,414

2.7

Anti-oxidant

17,995

14,204

26.7

18,012

-0.1



GPM and NPM at historical highs in 1Q18: The respective GPM and NPM were reported at 34.9% and 17.4% in 1Q18 (1Q17: 24.4% and 10%, 4Q17: 33.3% and 15.1%). The significant improvement in of margins was attributable to the growth in ASP and reduction of tax rates.

According to the Aniline Price Index, 1Q18 price level increased by 26% YoY. Meanwhile, the group was granted “High-tech Enterprise” status, leading to a reduction of tax rate (from headline rate of 25% to concessionary rate of 15%).


ChenGuangzhiMaintain BUY with a higher TP of S$1.97 
We revise upwards FY18e EPS to 23.3 SG cents (previously 16 SG cents) and FY19e EPS to 22.4 SG cents (previously 17.7 SG cents), on higher margins. We maintain our BUY recommendation with an increased target price of S$1.97 (previously S$1.60).

-- Chen Guangzhi (photo),
Analyst,
Phillip Securities Research

Negatives
- Trial run status: pending for approval: The trial run of the respective 10k-tonne newly-added capacity of accelerator TBBS and Insoluble Sulphur plant is expected to get approval by 2Q18. Each trial run could last for 1 to 3 months. 

Optimistically, both plants could commence full operation by 4Q18. It is expected that the new capacities will have a full year contribution in FY19.


Outlook
The enforcement of environmental protection policies and regulation will be strengthened moving forward.

RMB m

2018F*

2017

2016

Operating cashflow

572

385.3

202.9

Free cashflow

466

177.5

120.3

Cash & cash equivalents
(year-end)

894

499.6

275.9

Debt

0

0

0

*2018F by Phillip Securities. Figures are much higher than CGS-CIMB's.

Thus, we expect more rubber chemical plants to shut down before new capacity from large companies enter the market. As a result, the shortage of supply will persist in FY18 and benefit Sunsine.

Full report here. 

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