CHINA SUNSINE CHEM HLDGS LTD (SGX:QES)
China Sunsine Chemical - 2H21 Results Beat On Higher-Than-Expected ASPs
- China Sunsine Chemical recorded 2H21 net profit of RMB241.1m (+77% y-o-y), taking 2021 net profit to RMB506.3m (+131%), 14% above our estimate. Production volume continues to hit record levels from capacity expansion efforts, amid elevated ASP for rubber accelerators owing to rising crude oil prices.
- While we have raised 2022-23 earnings expectations for China Sunsine Chemical, our valuation peg has been reduced due to the rising interest rate environment.
China Sunsine's 2H21 earnings beat on higher-than-expected ASPs.
- China Sunsine Chemical (SGX:QES)’s 2H21 net profit jumped 77% y-o-y to RMB241.1m, on the back of increased revenue of RMB1,967.7m (+52% y-o-y) due to both a rise in sales volume to 102,243 tonnes (+9.3%) and a 40% y-o-y increase in ASPs of rubber accelerators to RMB18,983/tonne. The better-than-expected ASP was from the higher price of aniline, the major feedstock for rubber accelerators, stemming from rising oil prices in 4Q21.
- Benefitted from operating leverage; special dividend proposed. As the price increase in raw materials outpaced the increase in ASPs due to a time lag to pass on higher costs to customers, 2H21 gross margin contracted 2.6ppt y-o-y to 25.1%, (2H20: 27.8%, 1H21: 31.4%).
- Nevertheless, China Sunsine Chemical's net profit margin expanded 1.7ppt y-o-y to 12.3% mainly due to positive operating leverage as a result of the larger revenue base. Management has proposed to pay out S$0.02, consisting a final dividend of S$0.01 and a special dividend of S$0.01 (2020: S$0.01).
New capacity to bolster forward earnings as ASPs stay elevated.
- In Dec 21, China Sunsine Chemical commenced commercial amid the elevated utilisation rate across its factories currently.
Strong balance sheet and healthy cash flow.
- As of end-21, China Sunsine Chemical's total cash and bank balances stood at RMB1,377.3m with no debt outstanding, which equates to RMB1.42/share (S$0.28/share). Additionally, free cash flow generated in 2021 remained positive at RMB163m (2020: RMB208m) despite capacity expansion efforts, and is estimated to improve to RMB353.9m and RMB484.6m in 2022 and 2023 respectively.
- Correspondingly, China Sunsine Chemical's net cash per share is estimated to increase to RMB1.68/share (S$0.33/share) and RMB2.08/share (S$0.41/share) in 2022 and 2023 respectively.
China Sunsine - Earnings forecast and recommendation
- Due to higher expectations for crude oil price according to US Energy P/E relative to its closest peer Shandong Yanggu Huatai (300121 CH), which trades at 12.0x forward P/E.
- See
- Catalyst: ASPs for rubber accelerators remaining elevated.
Clement Ho
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-02-25
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