CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)
China Sunsine Chemical Holdings - ASP Uptrend Points To A Stronger 4Q20
- China Sunsine provided a positive 3Q business update, in our view, with stronger-than-expected sales volumes and margin expansion.
- We expect an even better 4Q20F, as ASPs are observed to be on an uptrend, helped by stronger downstream demand and rising raw material costs.
- Reiterate ADD on China Sunsine with a higher target price of S$0.55 (0.92x FY21F P/BV).
China Sunsine's positive 3Q business update
- In its business update, China Sunsine (SGX:QES) announced that it achieved a Rmb600m revenue in 3Q20 (1H20: Rmb1.05bn), riding on record sales volume of 46,000 tonnes (95% utilisation rate factoring in the new 20kt capacity expansion in Jun). See China Sunsine's announcements.
- While ASPs remained low during the quarter, Sunsine was able to achieve GPM expansion to 28.3% in 3Q20 (1H20: 23.2%). While we had expected sequential improvements in 3Q on the back of stronger downstream demand, sales volumes and margin expansion were stronger than expected.
Strong China auto market underpins demand recovery
- The downstream demand recovery trend remains intact. We raise our sales volume forecast to 91.7kt (+20.1% h-o-h, +7.4% y-o-y) for 2H20F. Domestically, industrial production of the tyre manufacturing industry (Sep: +6% m-o-m, +11% y-o-y) is riding on an upturn in the automobile industry helped by government stimulus measures and policies to promote domestic consumption in China.
- Meanwhile, export volume of China’s rubber accelerators (Sep: +11% m-o-m, +9% y-o-y) has picked up in recent months as overseas economies resume activities. Despite the resurgence in COVID-19 cases worldwide in recent months, management notes that demand for rubber chemicals has stayed solid.
ASP uptrend in Oct points to stronger 4Q
- Post a two-year downtrend, rubber accelerator and anti-oxidant industry prices saw recovery of 19% and 7% respectively since Oct; and we see further upside 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 Oct (+10% m-o-m) as producers’ inventory levels return to a more normalised level. With volume and ASP uptick in 2H, we remain confident that Sunsine can continue to achieve sequential earnings recovery, and raise our net profit forecast for 2H20F to Rmb131m (+59% h-o-h, +7% y-o-y).
Maintain ADD with a higher target price of S$0.55
- We raise our China Sunsine's FY20-22F EPS forecasts by 4.9-13.4% to reflect higher ASP assumptions.
- Maintain ADD. Our target price is lifted to S$0.55, now based on 0.92x FY21F P/BV (China Sunsine’s 10-year historical mean), from 0.72x (0.75 s.d. below mean) before.
- See China Sunsine Share Price; China Sunsine Target Price; China Sunsine Analyst Reports; China Sunsine Dividend History; China Sunsine Announcements; China Sunsine Latest News.
- Potential re-rating catalyst is stronger-than-expected selling price uptrend.
- 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
2020-11-17
SGX Stock
Analyst Report
0.55
UP
0.420
