CHINA SUNSINE CHEM HLDGS LTD.
CH8.SI
China Sunsine Chemical Holdings - Now A High-tech Enterprise With Lower Tax Rate
- China Sunsine enjoys concessionary tax rate of 15% compared to normal tax rate of 25% after attaining “High-tech Enterprise” status in China.
- Results above expectations with 1Q18 net profit forming 40%/39% of our/consensus full-year forecasts. Expect upward momentum in share price post 1Q18 results.
- Maintain ADD and Target Price S$1.62 for now, pending further updates from results briefing tomorrow morning.
Another record earnings in 1Q18; exceeds expectations
- China Sunsine's 1Q18 net profit of Rmb150m formed 40%/39% of our/consensus full-year forecasts.
- Revenue grew 49% y-o-y mainly on higher ASP as well as higher overall sales volume during the quarter.
- Gross margin expanded 10.5% pts to 34.9% in 1Q18 due to increased ASP.
Enjoys concessionary 15% tax rate as a high-tech enterprise
- The main subsidiary, Shandong Sunsine Chemical Co. Ltd, was granted “High-tech Enterprise” status by the authorities.
- It now enjoys a preferred tax rate of 15%, as compared to the normal tax rate of 25%. The status is valid for three years
- Assuming a lower effective tax of 18%, instead of 28%, would have adjusted our FY18-20F earnings forecasts by 13.9%.
Higher R&D expenses
- List of criteria for qualifying high-tech enterprise include investing 3-6% of revenue on R&D and earning over 60% of revenue from new technology products and services.
- Higher R&D expenses (c.Rmb20m-25m by our estimates) incurred during the quarter compared to previous year.
Our expectations on ASP normalising in 2H18 remains intact
- Rubber accelerator prices seemed to have come off by c.3-5% as indicated by price index in Sublime China Information (SCI) website.
- Management maintained its guidance on prices likely to normalise as some smaller players are resuming production.
Prices of high-grade TBBS rubber accelerator remain stable
- Our channel checks reveal that prices of high-grade accelerator TBBS have remained fairly stable (c. Rmb40,000/ton). TBBS accounted for 29% of Sunsine’s 87,000-ton capacity in rubber accelerators in FY16.
- TBBS will account for 36% after the addition of a new 10,000-ton TBBS production line that is expected to kick-start production in 2HFY18, which could offset the c.3% dip in ASP for rest of its rubber accelerators, by our estimates.
Maintain ADD with Target Price of S$1.62, pending updates from results brief
- Sunsine currently trades at 8.6x FY19 P/E, representing a 28% discount below peers’ average of 12.0x.
- Pending further updates from the results briefing on 26 April 18 morning, we maintain our ADD call and Target Price of S$1.62.
Colin TAN
CIMB Research
|
http://research.itradecimb.com/
2018-04-25
SGX Stock
Analyst Report
1.620
Same
1.620
