CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)
China Sunsine Chemical Holdings - Signs Of A Recovery
- We expect sequential earnings recovery in 2H20F as China Sunsine benefits from stronger sales volume amid downstream demand recovery.
- Rubber accelerator prices are at an 18-year low; we expect ASPs to improve in coming months, helped by stronger demand and rising raw material costs.
- Reiterate ADD on China Sunsine with higher Target Price of S$0.42, as we think the worst is over.
- Valuation is attractive as China Sunsine is backed by net cash of S$0.27/share.
Downstream demand upturn to drive volume growth
- We forecast China Sunsine Chemical (SGX:QES)’s sales volume to improve to 87.9kt (+15% h-o-h, +3% y-o-y) in 2HFY20F, driven by downstream demand recovery. Domestically, industrial production for the tyre manufacturing industry (Aug: +3% m-o-m, +9% y-o-y) is riding on an upturn in the automobile industry, as China has launched various government stimulus and policies to promote domestic consumption.
- Meanwhile, export volume of China’s rubber accelerators (Aug: +34% m-o-m, -3% y-o-y) have also picked up in recent months, as overseas economies gradually emerge from lockdowns.
- We estimate that China Sunsine is currently able to achieve a healthy utilisation rate of c.90%, even with the 20kt capacity expansion in Jun.
ASP showing signs of recovery
- Post a two-year downtrend, we are seeing signs of a recovery for China Sunsine’s ASP. Rubber accelerator and anti-oxidant prices rose 1% and 17%, respectively, in Sep (on a m-o-m basis), and we see further recovery in coming months, driven by
- continued downstream demand recovery and
- rise in raw material costs.
- Aniline, a key raw material, saw a price uptick in Sep (+8% m-o-m) as producers’ inventory levels return to a more normalised level. We expect China Sunsine to achieve a sequential earnings recovery in 2H20F, and forecast net profit of Rmb109m (+32% h-o-h, -12% y-o-y).
Maintain ADD on China Sunsine with a higher target price
- We raise our China Sunsine's FY20-22F EPS forecasts by 5.1-7.3% to reflect higher volume growth assumptions. Our Target Price is lifted to S$0.42 as we roll forward our valuation, now based on 0.72x FY21F P/BV (-0.75 s.d. of historical mean since public listing).
- Maintain ADD, as we think the worst is over for China Sunsine, and recommend investors to accumulate at this level.
- See China Sunsine Share Price; China Sunsine Target Price; China Sunsine Analyst Reports; China Sunsine Dividend History; China Sunsine Announcements; China Sunsine Latest News.
- Valuation is attractive as China Sunsine's share price is currently trading at 6.7x CY21F P/E, and downside risk is cushioned by its net cash of S$0.27/share.
- Potential re-rating catalyst is a recovery of Sunsine’s margin spreads.
- Key risks include worse-than-expected pricing competition or resurgence of COVID-19 impacting demand.
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-10-08
SGX Stock
Analyst Report
0.42
UP
0.380
