+ Major propellant came from soaring average selling price (ASP): In FY17, the total sales volume grew a mild 3.4% to 140.5k tonnes. Overall ASP soared to RMB19.4k/tonne (+29.3% YoY) (breakdowns are shown below):
The phenomenal growth of both sales volume and ASP in anti-oxidant in 4Q17 was attributed to the shortage of supply from peers, namely Sinogchem, Kemai Chemical Technical, and Xiangyu Chem. During the period, Sunsine managed to operate smoothly with regular delivery. Hence, it gained some market shares from peers.
– The trial run of new capacity is pending for approval: The Phase I construction and installation of 10k-tonne TBBS capacity was completed by the end of FY16. However, as of Dec-17, the trial run approval was still pending. The new production line of 10k-tonne insoluble sulphur completed by the end of FY17 is still on the status of pending for approval of trial run. There is no specific timeline that Sunsine will commence the trial operations of both projects.
We expect the market consolidation to continue in FY18. As the environmental protection regulations remain tight, both raw material and rubber chemical prices are expected to remain high. After all, any ramp-up of capacity in the market will not take effect in the very term. Thus, Sunsine as the market leader will continue to benefit from the favourable market condition. Sunsine will put effort on R&D with a budget of 3% of total revenue per annum and collaborate with technological research institutes to improve production techniques and product qualities.
Maintain BUY with unchanged TP of S$1.60
We maintain our FY18e EPS (16 SG cents) and tweak up FY19e EPS to 17.7 SG cents (previous 17.6 SG cents). We maintain our BUY recommendation with an unchanged target price of S$1.60.