Excerpts from CGS-CIMB report
Analyst: Colin Tan
|China Sunsine Chemical Holdings
Expecting another set of stellar results
■ Key focus for the coming results would be on whether Sunsine is able to maintain the ASP for its products on a qoq basis.
■ We have an Add call and target price of S$1.87.
Positive profit alert signals strong 2Q18 earnings
● As predicted, Sunsine issued a positive profit alert. It expects to report a substantial increase in net profit for the coming 2Q18 results.
● The share price showed positive momentum following its previous two positive profit alerts and we think this latest alert could likewise fuel positive trends in its share price.
● Expected profit growth is mainly due to increase in both ASP and sales volume of the group’s products.
● We think Sunsine could extend its record earnings streak to 2Q18 and project a net profit of Rmb162m for its upcoming 2Q18 results.
● The results will be released on 7 Aug 18.
What to expect from the upcoming results?
● We believe investors’ key focus would be on whether Sunsine is able to maintain the ASP for its products on a qoq basis.
● FX gains could be another surprise as Sunsine would likely benefit from the rising US$ against renminbi, given that Sunsine’s exports about one-third of its products, mainly to international tyre makers
● Another area of focus would be the approval status for the start of production for its added capacity, which would add a 10,000-tonne TBBS rubber accelerator production line and another 10,000-tonne insoluble sulphur line.
|Reiterate Add and target price of S$1.87
● Sunsine is currently trading at 7.8x CY19F P/E, below its peers’ average of 12.2x.
● We reiterate our Add call with a TP of S$1.87, pegged to 9.8x CY19F which represents a c.20% discount to its peers.
● Upside risk includes stronger-than-expected earnings growth. Key downside risks include weaker gross margins and delays in capacity expansion.
Full report here.