China Sunsine Chemical Holdings Ltd: An incredible start for the year April 30, 2018

PSR Recommendation: BUYStatus: MaintainedTarget Price: SGD1.97
  • 1Q18 revenue was in line with expectations while net profit exceeded by 14.2%. GPM was higher than anticipated.
  • High ASP and sales volume extended into 1Q18. GPM and NPM reached historical
  • The trial run of new capacity is expected to get approval by 2Q18.
  • We revise upwards FY18e EPS by 45% to 23.3 SG cents and FY19e EPS by 26% to 22.4 SG cents as we raise our margin assumptions. We maintain our BUY recommendation with a higher target price of S$1.97 (previously S$1.60).

1

Positives

+ High ASP and sales volume extended in 1Q18:  In 1Q18, the total sales volume grew 11.7% YoY to 36.5k tonnes, due to the ramp-up in the production of insoluble sulphur and anti-oxidant. However, it dropped mildly by 5% QoQ as production stopped work for the Chinese Spring Festival. Meanwhile, overall ASP was still on the upswing, reaching RMB23.2k/tonne in 1Q18 (+34.1% YoY) (breakdowns are shown below):

2

GPM and NPM at historical highs in 1Q18: The respective GPM and NPM were reported at 34.9% and 17.4% in 1Q18 (1Q17: 24.4% and 10%, 4Q17: 33.3% and 15.1%). The significant improvement in of margins was attributable to the growth in ASP and reduction of tax rates. According to the Aniline Price Index, shown in Figure 1, 1Q18 price level increased by 26% YoY. Meanwhile, the group was granted “High-tech Enterprise” status, leading to a reduction of tax rate (from headline rate of 25% to concessionary rate of 15%).  

Figure 1: China Aniline Commodity Index

3

Source: 100ppi.com, PSR

Negatives

– Trial run status: pending for approval: The trial run of the respective 10k-tonne newly-added capacity of accelerator TBBS and Insoluble Sulphur plant is expected to get approval by 2Q18. Each trial run could last for 1 to 3 months. Optimistically, both plants could commence a full operation by 4Q18. It is expected that the new capacities will have a full year contribution in FY19.

Outlook

The enforcement of environmental protection policies and regulation will be strengthened moving forward. Thus, we expect that more rubber chemical plants to shut down before new capacity from large companies enter the market. As a result, the shortage of supply will persist in FY18 and be benefiting Sunsine.

Maintain BUY with a higher TP of S$1.97

We revise upwards FY18e EPS to 23.3 SG cents (previously 16 SG cents) and FY19e EPS to 22.4 SG cents (previously 17.7 SG cents), on higher margins. We maintain our BUY recommendation with an increased target price of S$1.97 (previously S$1.60).

Comments

Be the First to Comment!

avatar
  Subscribe  
Notify of

About the author

Profile photo of Chen Guangzhi

Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!