It's a rare phenomenon: Two brokers initiated coverage of an S-chip in the past 2 weeks  -- China Sunsine. While one cannot totally ignore the S-chip stigma, China Sunsine has a remarkable profitability record and a perceived wide business moat and market dominance.

The company is just weeks away from announcing its FY2107 results which, going by the analysts' forecasts, are record numbers. Phillip Securities forecasts RMB344 m in net profit for FY2017, up from RM222 m in FY2016. CIMB's forecast is RMB291 m.

If you take the average profit forecast, then the PE of the stock ($1.11) currently is 8-9X. Looks attractive, which is why the analysts say 'buy' and have set target prices with significant upside.


Excerpts from the analysts' reports

Phillip Securities analyst: Chen Guangzhi

weifang worker9.14Rubber accelerators produced at China Sunsine factory. NextInsight file photo.Sunsine is the market leader in rubber accelerator industry, commanding 18% share of global production. 
• We expect the current attractive rubber accelerator product spread to sustain for the next couple of years as supply continues to consolidate in China. 
 Stringent environmental policies in China are phasing out smaller producers in favour of the leading producers such as Sunsine. 
 Additional growth by capacity ramping by a third to 117k tonnes by 2020. 
 We initiate a BUY call with a TP of S$1.60 (FY18e PE: 10x).

Full 17-page report here.

 

CIMB analyst: Colin Tan

■ Sunsine trades at 5.1x CY18F ex-cash P/E, at a 48% discount to its Chinese rubber chemicals peer Shandong Yanggu Huatai Chemical.
■ ASPs for accelerator products rose 25% yoy in 9M17 amid crackdown on pollution in China.
■ Boost in production capacity to kick in by 1H18F, fuelling 7% growth in total capacity.
■ Earnings have tripled since FY13, and we believe the company is set for continued earnings growth as the industry consolidates.
■ Initiate coverage with Add and a TP of S$1.50, based on 9.8x CY19F P/E (20% discount to global peers’ average

Full 20-page report here.





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