Excerpts from KGI Securities report

Analyst: Chen Guangzhi

Accumulate at the trough
• We re-initiate with an OUTPERFORM rating. Our target 
price of S$1.40 is based on DCF model and an 11.6% required rate of return.

China Sunsine

Share price: 
$1.09

Target: 
$1.40

We visited Sunsine’s new insoluble sulphur production line located at Dingtao, Shangdong province, in addition to visiting its headquarters and the main plants at Shanxian, Shangdong.

We observed that all the plants were running 
optimally.

 

Clean balance sheet with a strong net cash position.

Sunsine has managed to operate without debt since 4Q16. Moreover, its cash on hand reached RMB1.0bn in 2016, and most recently RMB1.17bn as of June 2019, equivalent to RMB2.39/share or S$0.46/share.

Sunsine’s strong net cash 
position is an additional competitive advantage, enabling the company to further gain market share by expanding its capacity at its own discretion, and mitigating any pressure from a potential liquidity crunch in the event of a market downturn.

Valuation & Action

ChenGuangzhiSunsine is currently trading at 5.6x 2019E PE, which we believe undervalues the group’s dominant position and growth prospects.

"We expect Sunsine’s performance to bottom out in 2020 as it continually increases its capacity and as ASPs recover. We re-initiate with an OUTPERFORM rating."

-- Chen Guangzhi (photo)
Analyst, KGI Research

Preparing for capacity expansion in the near term. The government has approved Sunsine’s plans to add to another 20k tonnes of TBBS (Phase II) production, which is expected to be installed by the end of 2020.

In addition, the company 
plans to acquire 680 mu of land, equivalent to 453.3k m2, in the Shanxian Chemical Zone for future expansion.

About 300 
mu of this new land purchase, or an equivalent 200k m2, is scheduled for another 60k tonnes of insoluble sulphur production lines.

Risks: Main risks come from:
1) prolonged environment of 
low ASPs for both raw materials and end products,
2) 
unexpected surge of industry capacity in the short-term, and 
3) an environmental protection inspection at the company that could result in a temporary reduction of utilisation rates.


Full report here.


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