China Sunsine Chemical Holdings - CGS-CIMB Research 2020-10-08: Signs Of A Recovery

CHINA SUNSINE CHEM HLDGS LTD (SGX:QES) | SGinvestors.io 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
    1. continued downstream demand recovery and
    2. 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






ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-08
SGX Stock Analyst Report ADD MAINTAIN ADD 0.42 UP 0.380



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