China Sunsine Chemical - CGS-CIMB Research 2021-04-30: Strong Start To 2021

SGinvestors.io

CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)

China Sunsine Chemical - Strong Start To 2021

• China Sunsine’s 1Q21 net profit of RMB125m (+64% q-o-q, +274% y-o-y) was above expectations, mainly due to stronger than expected GPM.
• We believe that a healthy profit spread can be sustained, supported by robust downstream demand and elevated raw material prices.
• We reiterate our ADD call for China Sunsine with a higher target price of S$0.66 (1.05x FY21F P/BV).

China Sunsine reported positive 1Q business update

• China Sunsine (SGX:QES)’s 1Q21 net profit of RMB125m (+64% q-o-q, +274% y-o-y) was above our expectations, forming 42% of our FY21F forecast.
• Key surprise was stronger-than-expected GPM of 31.6%, as Sunsine successfully passed on higher raw material costs to customers. Robust downstream demand led China Sunsine to achieve RMB840m revenue in 1Q21 (+22% q-o-q, +66% y-o-y), riding on record sales volume of 47,000 tonnes (98% utilisation rate) despite 1Q being a seasonally weaker quarter.

Downstream demand recovery to continue

• We believe that downstream demand will remain strong in CY21F. We expect China’s tyre manufacturing industry production (Mar 21: +16% 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 (1Q21: +4% q-o-q, +11% y-o-y) to also stay strong with the resumption of economic activities in the overseas markets.
• Overall, we forecast China Sunsine’s sales volume to grow 15% in FY21F.

Healthy profit spread could be sustained

• Post a strong start to the year, rubber chemical prices have retreated slightly in Apr 21, and now stands at RMB23k/ton (+8% year-to-date, +44% y-o-y), according to sci99.com. We think this is mainly due to downstream manufacturers having sufficient inventory post heavy procurement in 1Q21.
• We expect rubber accelerator prices to stabilise at current levels, supported by
  1. robust downstream demand, and
  2. elevated raw material costs.
• Price of aniline, a key raw material, has surged ~120% y-o-y riding on higher oil prices. We believe healthy profit spread for China Sunsine (Rmb4k gross profit per tonne) can be sustained for the remainder of the year, and raise our FY21F net profit forecast to RMB365m (+67%).

Reiterate ADD on China Sunsine with a higher Target price of S$0.66

• Maintain ADD. We raise our FY21-23F earnings per share forecasts of China Sunsine by 1.2-22.0% to reflect higher GPM assumptions. Our target price for China Sunsine rises to S$0.66, still based on 1.05x FY21F P/BV (0.5 standard deviation above its 10-year historical mean).
• See
  • China Sunsine's Share Price,
  • China Sunsine's Target Price,
  • China Sunsine's Analyst Reports,
  • China Sunsine's Dividend History,
  • China Sunsine's Announcements,
  • China Sunsine's Latest News.
• Potential re-rating catalyst is stronger-than-expected selling prices.
• Key downside risks include worse than expected pricing competition and resurgence of COVID-19 cases, impacting demand.

ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-30

SGX Stock Analyst Report ADD MAINTAIN ADD 0.66 UP 0.610