China Sunsine Chemical Holdings - CIMB Research 2018-03-02: Record 4Q17 Earnings From Rising ASPs

China Sunsine Chemical Holdings - CIMB Research 2018-03-02: Record 4Q17 Earnings From Rising ASPs CHINA SUNSINE CHEM HLDGS LTD. CH8.SI

China Sunsine Chemical Holdings - Record 4Q17 Earnings From Rising ASPs

  • We provide updates following China Sunsine Chemical's results briefing on 2 Mar 18.
  • 4Q17 and FY17 net profits were above expectations on better-than-expected margins, forming 45%/117% of our full-year forecast.
  • Gross margin expanded to 33.3% in 4Q17 vs. 26.8% in 3Q17 on the back of rising ASPs amid supply shortage of rubber accelerators, which benefited Sunsine.
  • Expects to kickstart new 10,000-tonne TBBS production line and 10,000-tonne insoluble sulphur line by end-2Q18.
  • Maintain ADD with a higher target price of S$1.62, still pegged to 9.8x CY19F P/E (13% discount to rubber chemical peers).

Record earnings in 4Q17, above expectations 

  • China Sunsine Chemical's net profit surged 121% y-o-y to Rmb132m in 4Q17 as a result of a better-than-expected gross margin and increased output of anti-oxidants. 4Q17 revenue grew 58% y-o-y to Rmb873m, mainly due to higher ASPs, while the gross margin improved to 33.3% vs. 26.8% in 3Q17. 
  • On a full year basis, Sunsine achieved record FY17 PATMI of Rmb341m, accounting for 117/110% of our/Bloomberg consensus estimates.

Rubber accelerator ASP rose 22% q-o-q in 4Q17 

  • Overall ASP of Sunsine’s rubber accelerators sold in 4Q17 jumped 23% q-o-q to Rmb27,500/tonne. Production of smaller firms that failed to meet relevant regulations was severely impacted in 4Q17. 
  • According to Sublime China Information (SCI) website, prices for various rubber accelerators continue to remain at high levels in Jan-Feb 18. We expect smaller competitors to invest more on environmental protection equipment, leading to restoration in production outputs and prices could start to normalise in 2H18F.

Adding 20,000 tonnes to annual production capacity this year 

  • Sunsine's total annual production capacity was 152,000 tonnes at end-2017 and is slated to rise 20,000 tonnes this year via a 10,000-tonne TBBS rubber accelerator production line and a 10,000-tonne insoluble sulphur line. 
  • Sunsine is awaiting approval from the relevant authorities to start trial runs for the two production lines. As both its rubber accelerators and insoluble sulphur production are already running at 100% utilisation, we expect production output to increase with the new additions to capacity.

Rmb500m net cash with zero debt 

  • Sunsine remained in a net cash position, with Rmb500m cash as at end-FY17 and zero borrowings. This gives it ample ammunition to internally fund future capacity expansion and invest in environmental protection equipment. 
  • Sunsine declared DPS of 2.5 Scts for 4Q, bringing total FY17 DPS to 3.0 Scts, maintaining its 20% dividend payout.
  • Management indicates it will continue to keep cash as a buffer against any potential downturns, thus we do not expect any surprises in dividend payout anytime soon.

Maintain ADD with higher target price of S$1.62 

  • We lift our FY18-19F EPS by 8.4-13.3% to reflect higher ASPs this year and introduce our FY20 forecasts. We like Sunsine as a prime beneficiary of industry consolidation amid pollution curbs in China. Its valuation remains undemanding at 8.1x CY19F P/E, vs. peer average of 11.6x. 
  • We keep our ADD call, with a higher Target Price of S$1.62. 
  • Further increase in its ASPs is a key potential re-rating catalyst. 
  • Downside risks to our call include plunge in ASPs and delays in its capacity expansion.

Colin TAN CIMB Research | http://research.itradecimb.com/ 2018-03-02
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.62 Up 1.500