China Sunsine Chemical - CGS-CIMB Research 2021-02-26: Riding The Upturn

CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)

China Sunsine Chemical - Riding The Upturn

China Sunsine reported 2H20 net profit of RMB136m (+66% h-o-h, +11% y-o-y). FY20 results was in line with our expectations, but ahead of consensus estimates.
We see continued ASP uptrend, supported by robust downstream demand and higher raw material prices; this could support better profit spreads ahead.
Reiterate ADD with a higher target price of S$0.61 (1.05x FY21F P/BV).

China Sunsine (SGX:QES) reported 2H20 net profit of RMB136m (+66% h-o-h, +11% y-o-y), riding the sequential ASP recovery in 2H which allowed the company to capture better profit spreads. See China Sunsine's announcements. This was despite the RMB32m forex loss incurred in 2H due to the depreciation of the US$ against RMB.
China Sunsine's FY20 net profit came in at RMB219m (-40% y-o-y), in line with our expectation (102% of our forecast) but above Bloomberg consensus’ (108%).

We believe downstream demand will remain strong in CY21F. We expect China’s tyre manufacturing industry (Dec: -1% m-o-m, +14% y-o-y) to remain robust with the continued growth in the auto industry (China Association of Automobile Manufacturers expects new vehicle sales in China to grow 4% in 2021F).
We expect the export volume of China’s rubber accelerators (Dec: +13% m-o-m, +24% y-o-y) to also stay strong with the resumption of economic activities in the overseas markets.
We understand that China Sunsine’s 20kt rubber accelerator capacity added in mid-2020 has been well absorbed, with growing utilisation rate, and forecast its sales volume will grow 13% in FY21F.

Post a two-year downtrend, average prices in the rubber accelerator and anti-oxidant industries had recovered 40% and 38% respectively since Sep 2020 to date. We see further upside in the coming months, supported by
1. robust downstream demand, and
2. rise in raw material costs.
The price of aniline, a key raw material, has surged since Oct (+105% to date) riding on higher oil prices.
There is typically a time lag of 1-2 months for China Sunsine to recognise higher selling prices as its pricing contracts are mostly negotiated on monthly/quarterly basis; hence we expect further uptick in its ASPs in 1H21F.
We see stronger profit spread ahead, and forecast China Sunsine's FY21F net profit of RMB300m (+37%).

Maintain ADD. We raise our FY21-22F earnings per share forecasts by 4.8%-6.1% to reflect higher ASP assumptions. Our target price rises to S$0.61, now based on 1.05x FY21F P/BV (0.5 s.d. above its 10-year historical mean) vs 0.92x (mean) previously.
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 petition and resurgence of COVID-19 cases, impacting demand.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-26

SGX Stock Analyst Report ADD MAINTAIN ADD 0.61 UP 0.550