China Sunsine Chemical - UOB Kay Hian 2021-04-12: Rubber Accelerators’ ASP Remains Elevated Due To High Demand


China Sunsine Chemical - Rubber Accelerators’ ASP Remains Elevated Due To High Demand

  • The strong demand for rubber tyres has helped sustain the ASP of rubber accelerators at an elevated level. For 2021, incoming new capacity for insoluble sulphur will help to further entrench China Sunsine’s top position as the key global supplier of essential additives for the production of rubber products.
  • We expect China Sunsine's 2021 sales and net profit to grow 63% and 37% respectively.
  • Maintain BUY on China Sunsine with a higher target price of S$0.695 after changing our valuation methodology.

Strong demand for rubber accelerators supporting ASP.

  • The China Association of Automobile Manufacturers (CAAM) estimates 1Q21 auto sales at 6.34 million units, up 73% y-o-y, driven by both passenger vehicles (+74% y-o-y) and commercial vehicles (+71% y-o-y). This has translated to a healthy demand for rubber accelerators, and is further reflected in the sustained high price for the feedstock.
  • For 2021, CAAM expects vehicle sales of 26.3 million, a 4% increase over 2020 and should provide tailwinds for the demand of rubber accelerators.

Entrenched top position as a global producer of rubber accelerators.

  • China Sunsine (SGX:QES) is the top producer of Kemai (51,600 tonnes). This provides for greater scalability and better pricing flexibility to maintain China Sunsine’s leading market share position, estimated at 34% for the China market and 22% for the global market in 2020.
  • Also, China Sunsine is the second-largest rubber, with a capacity of 30,000 tonnes/year. The capacity will be expanded to 60,000 tonnes/year in 2021, spearheading China Sunsine to the top producer position globally and ahead of Yanggu Huatai’s (40,000 tonnes).

Main feedstock aniline prices remain elevated.

  • The ASP of rubber accelerators, the main earnings driver for China Sunsine, has continued to gain ground, in tandem with aniline, the major feedstock for rubber accelerators, due to higher crude oil prices. The average price of aniline rose 54.4% y-o-y in 1Q21 to RMB10,068/tonne, a 41.3% sequential increase over 4Q20.

Vehicle numbers growth outweighs global auto chip shortage.

  • CAAM estimates that the global auto chip shortage will lead to a production comprises replacement tyres. We maintain our hypothesis that the supporting tyre industry is expected to return to normalcy in 2021 as traffic volume returns to pre-pandemic levels.

China Sunsine - Earnings Revision & Recommendation

China Sunsine - Share price catalyst

  • Higher ASP for rubber accelerators.
  • Higher-than-expected utilisation rates.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-12
SGX Stock Analyst Report BUY MAINTAIN BUY 0.695 UP 0.580