Excerpts from analysts' reports following the 3Q18 results of China Sunsine (CSSC):

Phillip Securities Research (analyst: Chen Guangzhi)

Outlook

tbss9.149M18 gross profit margin was high at 34.9%, the result of widening gap between average selling price and the cost of raw materials. NextInsight file photo CSSC is facing a bit headwind of ASP correction currently. However, we believe there is a limited downside since overall supply within the market has not increased substantially.

At the moment, the dip in both finished products and materials resulting from softened demand is cyclical. We ought to concentrate on the ramp-up of capacity and production which will be realised in the near term.

China Sunsine

Share price: 
$1.08

Target: 
$1.68

We still expect 4Q18 GPM to sustain at above 30%. As of 3Q18, cash in hand reached RMB822mn, and we expect it to reach more than RMB1bn in FY18. It is beneficial to hoard cash when the market is in favour of business, preparing for future development when the market turns.

Maintain BUY with a lower TP of S$1.68 We revise up FY18e EPS by 17.5% to 26.9 SG cents and FY19e EPS by12.7% to 23.9 SG cents.

Due to expected softer ASP, the required rate of return was changed from 8% to 10% based on an updated Beta.

We maintain our BUY recommendation with a lower target price of S$1.68.

Full report here.

CGS-CIMB (analyst: Colin Tan)

Closer to getting approval for 13% expansion in capacity

China Sunsine

Share price: 
$1.08

Target: 
$1.41

Management cited during the results briefing today that it is close to getting approval for the planned capacity expansion after obtaining necessary certifications pertaining to fire safety controls for the new 20,000-ton production lines.

The new lines will expand Sunsine’s annual capacity to 172,000 tons and would provide an additional boost to sales volume for FY19F as Sunsine is already running at c.98% capacity utilisation.

Upgrade from Hold to Add with unchanged TP of S$1.41
We think the negatives have been priced in following the c.30% decline in share price over the last 3 months. We thus upgrade our call to Add as we see declines in ASPs could possibly slow down ahead.

Our TP remains unchanged at S$1.41, pegged to 7.7x FY19F P/E. The stock is currently trading at 5.7x FY19F P/E, c.30% discount to its rubber chemical peers. Re-rating catalysts could come from ASPs rebounding.

Key risks include a sharper fall in ASPs and production halts amid stringent environmental inspections from the authorities.

Full report here.


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