China Sunsine Chemical Holdings - CGS-CIMB Research 2019-08-07: ASP Outlook Remains Challenging

CHINA SUNSINE CHEM HLDGS LTD. (SGX:CH8) | SGinvestors.io CHINA SUNSINE CHEM HLDGS LTD. (SGX:CH8)

China Sunsine Chemical Holdings - ASP Outlook Remains Challenging

  • CHINA SUNSINE CHEMICAL (SGX:CH8)'s 2Q19 core net profit declined 32% y-o-y to Rmb130m, in line with expectations, as weaker ASP offset the increases in sales volume.
  • Near-term ASP outlook remains challenging, with pricing pressure stemming from weaker downstream demand and lower raw material prices.
  • We resume coverage on China Sunsine with a HOLD call and Target Price of S$1.10, based on 5.5x FY20F P/E.



China Sunsine's 2Q19 results in line

  • China Sunsine’s 2Q19 topline declined 17% y-o-y due to weak ASP (-29% y-o-y; -6% q-o-q), partially offset by higher sales volume attributable to new production lines added earlier this year. GPM narrowed 2% pts y-o-y to 34.7% due to the lower ASP.
  • Stripping off the reversal of S$5.1m bonus previously accrued for its Chairman, China Sunsine’s 2Q19 core net profit declined 32% y-o-y to Rmb130m.
  • We deem 1H19 core net profit as in line with our and Bloomberg consensus forecasts, at 50% and 47% of the respective full-year estimates. We forecast Sunsine to record core net profit of Rmb479m in FY19F.


Near-term ASP outlook remains challenging

  • We remain bearish on China Sunsine’s ASP outlook, and forecast its blended ASP to further decline 3% q-o-q to Rmb16,182/tonne in 3Q19F as we expect pricing pressure stemming from weaker downstream demand and lower raw material prices.
  • Demand for rubber accelerators remains weak YTD, with China rubber tyre sales volume and rubber accelerator export volume declining 5.4% and 8.0% y-o-y respectively in 6M19. Also, aniline prices (25-30% of COGS) remained weak in 2Q19 (+0.2% q-o-q, -48.6% y-o-y), which could limit upside for Sunsine’s selling prices, in our view.


Earnings recovery to be ASP driven

  • Despite the lacklustre downstream demand, China Sunsine was able to sustain sales volume growth of 15% y-o-y in 2Q, likely due to gains in its customers’ wallet share. However, with China Sunsine already operating near full capacity, we believe further earnings improvement will have to stem from ASP recovery.
  • Overall, we forecast China Sunsine to record 15.2% y-o-y revenue decline and 19.2% core net profit drop in FY19F.


Maintain HOLD with Target Price of S$1.10

  • As its near-term ASP outlook remains challenging, we resume coverage on China Sunsine with a HOLD call. Our Target Price of S$1.10 is pegged to 5.5x CY20F P/E (0.25 s.d. below its 5-year historical P/E).
  • Potential re-rating catalysts include earlier-than-expected recovery in downstream demand.
  • Key downside risks include intensifying pricing competition leading to sharper fall in ASPs.





ONG Khang Chuen CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.10 DOWN 1.290



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