Excerpts from CGS-CIMB report
Analyst: Colin Tan
Another sizzling set of quarterly results
■ Benefitted from lower concessionary tax of 15% after attaining “High-tech Enterprise” status that is valid for three years. ■ Still pending for trial-run of new 20,000-ton capacity expansion; we now expect commercial production to kick in by end-3Q18F. ■ We raise our FY18-20F earnings forecasts by 7-45%, anticipating a more gradual normalisation in ASPs in FY18F and lower effective tax rate ahead. ■ Maintain Add with a higher TP of S$1.87, pegged to 9.8x CY19F P/E. |
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Investors and other guests interacting with China Sunsine CEO Liu Jing Fu (right) during a celebration of the company's 10th anniversary of listing on the SGX in 2017. Photo: Company
Another record set of earnings in 1Q18
Net profit surged 161% yoy to Rmb150m in 1Q18, accounting for 40%/39% of our/Bloomberg consensus’ estimates. This came on the back of a surge in revenue amid rising ASP and better-than-expected gross margin, which improved by 10.5% pts to 34.9% in 1Q18.
The quarter also witnessed a significant increase of over 3,000 tons in rubber chemicals output to c.36,800 tons compared to 1Q17, mainly due to higher sales volume of anti-oxidants.
Now a high-tech enterprise, enjoying lower 15% tax rate
Effective tax rate in 1Q18 was lowered to 18% as compared to 32% in 1Q17 after its main subsidiary, Shandong Sunsine Chemical Co, was granted “High-tech Enterprise” status from the authorities.
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Maintain Add with a higher TP of S$1.87 |
List of qualifying criteria includes having R&D expenditure (c.Rmb22m incurred in 1Q18) accounting for over 3% of revenue over the last three years. The status is valid for three years and renewable every three years. We now factor in recurring R&D costs in our forecast period.
Trial-run approval for 20,000-ton capacity expansion still pending
Sunsine is still awaiting approval from relevant authorities for the trial-run of the two new production lines – a 10,000-ton TBBS production line and 10,000-ton insoluble sulphur production line without much progress being made since the last quarter.
Management is hopeful of starting the trial-run by end-2Q18F and we now think the commercial production could commence by end-3Q18F. The expansion will add 20,000 tons to its 152,000-ton production capacity.
Anticipate a more gradual normalisation in ASPs in FY18F
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RMB m |
2018F* |
2017 |
2016 |
|
Operating cashflow |
407.5 |
385.3 |
202.9 |
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Free cashflow |
296.2 |
177.5 |
120.3 |
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Cash & cash equivalents |
725 |
499.6 |
275.9 |
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Debt |
0 |
0 |
0 |
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*2018F by CIMB |
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Our channel checks reveal that prices of most rubber accelerators, apart from its high grade TBBS accelerator, have started to dip in Mar 18, albeit at a slow steady pace.
We expect a more gradual normalisation in rubber accelerator ASPs for Sunsine for the rest of FY18F, forecasting a blended ASP of c.Rmb21,600/ton (compared to c.Rmb19,400/ton in FY17) for rubber chemical products.
Prices of TBBS have remained firm (c.Rmb40,000/ton) as only a handful are capable of producing it, in our view.
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