China Sunsine Chemical - CGS-CIMB Research 2021-10-20: ASP Uptrend Points To A Stronger 4Q21

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CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)

China Sunsine Chemical - ASP Uptrend Points To A Stronger 4Q21

• Rubber accelerator prices have seen a strong uptick over the past three months. This should bode well for China Sunsine’s profit spread in 4Q21F.
• While 3Q21F net profit could show some q-o-q weakness, we believe China Sunsine is on track to recording a 115% y-o-y net profit growth in FY21F.
• China Sunsine's valuation is attractive at 2.5x FY22F P/E (ex-cash). Reiterate our ADD rating with a higher target price.

Rising ASPs point to a stronger 4Q21F for China Sunsine

• Post the ~20% correction in rubber accelerator prices between mid-Apr to early-Aug, we note that pricing has resumed its uptrend since, and have especially picked up pace in Oct. According to sci99.com, rubber accelerator prices averaged RMB21.2k/ton in Sep 2021 (+8.6% m-o-m, +42% y-o-y), and reached RMB26.2k/ton last week. We believe that the stronger ASPs are mainly due to higher input costs, exacerbated by lower industry supply due to environmental policies and power curbs impacting the production of some industry players.
• Meanwhile, end-products continued to see healthy demand, supported by exports and inventory replenishment of downstream industries. We expect rubber accelerator prices to remain high in 4Q21F.

On track to doubling net profit in FY21F

• We expect China Sunsine Chemical (SGX:QES) to benefit from the uptrend in forecast to RMB470.5m (+115% y-o-y).

China Sunsine's 3Q21F earnings preview: +55% y-o-y net profit growth

• We forecast China Sunsine recording a 3Q21F net profit of RMB93m (-34% q-o-q, +55% y-o-y). This reflects the sequentially-weaker tonne of RMB4,760 in 3Q21F (-22% q-o-q, +30% y-o-y).

Reiterate ADD rating on China Sunsine with higher target price

• We raise our FY21-23F EPS forecasts by current valuations for China Sunsine are undemanding at 2.5x FY22F P/E (ex-cash).
• 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 downstream demand.
• Key downside risks include intensifying pricing competition amid weakening downstream demand.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-20

SGX Stock Analyst Report ADD MAINTAIN ADD 0.77 UP 0.680