• The volume of chemical products China Sunsine sold to global manufacturers of tyres was 56,114 tonnes (+16% y-o-y). This was its highest quarterly sales volume ever.

• China Sunsine, which this month won a Most Transparent Company award from the Securities Investors Association of Singapore, cited lower selling prices, lower input costs and "flexible pricing".
Bottomline, its 3Q net profit was RMB65 M (S$12 million), a drop of 49% y-o-y.


Stock price 

39 c

52-week range

37 – 47c

Market cap

S$375 m

P/B

0.5 x

Net cash

S$275 m

PE ratio

5

Dividend yield

3.8%

Source: SGX

• None too impressed, CGS-CIMB has slashed its FY2023 profit forecast.

The forecast figure had experienced a mini roller-coaster ride: It had gone up from RMB359 million in Aug 2023 to RMB403 million in Sept. Now, it's RMB329 million. The latter is $65 million in Singapore dollar terms, still a significant figure in itself. 


• China Sunsine's net cash level is cool: As of 3Q, the Singapore-listed company had about S$280 million cash, or 75% of its current market cap. 

• China Sunsine's PE is an ultra-low less than 2X (ex-cash) based on CGS-CIMB's profit forecast of RMB329 million. Read on for what the broker says...



Excerpts from CGS-CIMB report

Analysts: Kenneth Tan & Ong Khang Chuen, CFA

Record sales volumes, but weaker margins

■3Q23 net profit of Rmb65m (-49% yoy) was a miss, likely due to weaker-than-expected GPM (c.19%). Sales volumes hit a record high (+16% yoy). 

China Sunsine

Share price: 
39 c

Target: 
47 c

■ We see healthy volume growth in FY24F (+5% yoy) on further ramp-up of newer lines, while competition will likely remain intense among incumbents.

■ Reiterate Add. Our TP is maintained at S$0.47 on 0.6x CY24F P/BV.


plantmodel info9.14

3Q23: record high sales volumes but hit by weaker margins


China Sunsine’s 3Q23 net profit of Rmb65m (-49% qoq/yoy) was below our expectations, with 9M23 net profit forming 64% of our FY23F forecast. 

Rising selling prices
"Rubber accelerator prices rose strongly in Sep/Oct, with average prices rising 17%/18% (vs. end-Aug prices), before tapering in Nov."
-- CGS-CIMB

The miss was likely due to a weaker-than-expected GPM (undisclosed), which we estimate at 19% (-8% pts yoy), as intense industry competition weighed on profitability.

Revenue of Rmb875m (+1% qoq, - 5% yoy) was in line, as record high sales volumes (+16% yoy) were offset by declining ASPs (-18% yoy, likely due to falling raw material costs and greater price competition).


ASP uptick could point to slight qoq improvement in 4Q23F spread


According to sci99.com (commodity information service provider), rubber accelerator prices rose strongly in Sep/Oct, with average prices rising 17%/18% (vs. end-Aug prices), before tapering in Nov.

While we note Aniline prices have begun to rise over the past week (likely attributed to plant repairs from industry players and winter seasonality), we think Sunsine was able to lock in strong ASPs at the start of 4Q23F with its major customers, resulting in a slight qoq improvement in 4Q23F GPM to c.21% (4Q22: 24%), with ASP growth likely outpacing that of input costs, in our view.

FY24F: healthy volume growth, competition to remain intense


We believe Sunsine should see healthy volume growth in FY24F (+c.5% yoy), supported by

1) ramp-up of newer Insoluble Sulphur and antioxidant production lines (both launched in 1H22), and
2) potential addition of 30k tonnes of new Insoluble Sulphur capacity (possibly in 2H24F, in our view).


Although Sunsine expects near-term competitive pressures to stay intense given incoming industry supply, the company reiterated that its dominant market leadership and strong balance sheet positions (3Q net cash at c.75% of current market cap) are wide economic moats.

We cut our FY23-25F EPS by 3-18% as we factor in the weak 3Q results and bake in larger-than-expected GPM pressure ahead.

Reiterate Add, TP unchanged at S$0.47 as we roll forward to CY24F

 
OngKhangChuenKenneth Tan, analystMaintain Add as we like Sunsine for its undemanding valuation of 5x FY24F P/E.

Our TP is rolled forward to 0.6x CY24F P/BV, based on 1 s.d. below 5-year historical mean.

Rerating catalysts: government stimulus promoting big-ticket spending in China.

Downside risks: prolonged competition pressuring ASPs and a spike in input costs leading to margin erosion.

 

Full report here

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