Apart from the strong set of 2Q14 results (which saw the group reported a 194% yoy surge in earnings to RMB60.2 mln) announced last month, we note that recent interest in the counter also coincide with the site visit organised by the company to its production facilities located at Shanxian, Dingtao and Weifang in Shandong Province, the PRC.
A total of 15 participants including several sell-side analysts, media and accredited investors were on the 4-days trip last week.
China Sunsine is particularly well-positioned to ride the cyclical upturn in the rubber chemical industry, benefi tting from the central government’s policy to place more emphasis on environmental protection. In fact, the move has forced some of its competitors to temporarily suspend their productions that failed to meet the relevant environmental regulations,
resulting in shortage of supply in the market. Due to its early investment in green processes, the group was thus able to take advantage of the current situation by selling more products at higher ASP.
Based on management’s guidance, China Sunsine is likely to achieve record profits of between RMB170-207mln for the FY14. If the stock trades up to its historical PE average of 6x, the stock could be worth between 45-55 cents/share.
And assuming the group continues to pay out DPS of 1.0 cent (which it has maintained for the last 7 years since its IPO in 2007), this translates into yield of 2.4%. However, key downside risks would include stiff competition, volatility of rubber chemical prices and industry overcapacity.
We visited the key facilities of China
Sunsine, the world’s largest rubber
accelerator producer, on 15-18 Sep.
While the operations of some key
competitors have been suspended due
to environmental issues, Sunsine has
expanded its market share and
profitability. Sunsine could be worth
S$0.435 (based on its historical
forward P/E of 5.95x) or S$0.65 (peer
average of 8.9x CY15 P/E), depending
on your choice of yardstick.
Query 2:
Are you aware of any other possible explanation for the trading? Such information may include public circulation of information by rumours or reports
Company’s response:
Due to the Chinese government placing more emphasis on environmental protection, a number of rubber chemical producers, including some of our Group’s key competitors, have been forced to suspend their production. As a result, there has been a supply shortage in the market. The Group is benefitting from the tightening of these environmental regulations, and is able to increase both its sales volume and average selling prices. This information has been previously disclosed in our second quarter results announcement
dated 7 August 2014.
In addition, a few brokerage house analysts, shareholders and investors made a plant visit to our Shandong factories between 15 September to 18 September 2014 to better understand our Group’s products and manufacturing processes. We understand there were a few positive reports issued by these brokerage
houses and their analysts recently. This has heightened public awareness of our Company and may have explained the higher volume and price movement of our shares.
Healthy correction going on. Flushing out short-term profit-taking.... new waves of investors will enable Sunsine to move up to the next level at around 50 cents where the PE is about 4.5X. Still cheap.
