Excerpts from CGS-CIMB report
Analyst: Ong Khang Chuen, CFA

Higher dividend payout a positive surprise

■ 2H22 net profit declined to Rmb215m (-11% yoy) due to weaker downstream demand that hurt profit spread. FY22 total DPS of 3Scts implies 6.1% yield.

China Sunsine

Share price: 
48 c

Target: 
60 c

■ China recovery bodes well for recovery in domestic downstream demand, though we are more cautious on export sales outlook in CY23F.

■ Reiterate Add and TP of S$0.60 on attractive 1.7x FY24F ex-cash P/E.


plantmodel info9.14

2H22: Volumes resilient, but weaker profit spreads


China Sunsine Chemical Holdings’ 2H22 net profit of Rmb215m (-50% hoh, -11% yoy) was in line with our expectations.

Attractive valuation
"Reiterate Add as valuations remain attractive at 1.7x FY24F ex-cash P/E, with a sustainable dividend yield of c.5%."

-- CGS-CIMB

FY22 net profit of Rmb642m (+27% yoy) formed 99%/100% of our/Bloomberg consensus’ forecasts.

Sales volume rose 6% hoh due to stronger sales of insoluble sulfer and antioxidants (capacity expansion-driven), which offset weaker rubber accelerator sales.

However, weaker downstream demand compressed Sunsine’s profit spread; GP per tonne fell 36% hoh in 2H22.

Sunsine proposed a higher FY22 DPS of 3 Scts (FY21: 2.0 Scts), implying a 6.1% dividend yield.

Reopening of China could help domestic sales volume recovery


With China’s pivot from its zero-Covid stance, we expect recovery in domestic downstream demand, supported by recovery of economic activities and potential stimulus measures by the government.

However, we are more cautious on export sales; major tyre manufacturer Bridgestone put out a guarded 2023 outlook during its recent results brief, as it notes that demand for replacement tyres in 4Q22 was hit by economic woes in the US and Europe.

Overall, we expect a slight 3% yoy sales volume growth for FY23F.

 

More time needed for profit spread recovery


According to sci99.com, a Chinese commodity market information service provider, both rubber accelerator and aniline prices remained weak through Dec 22-Jan 23, before showing some recovery in Feb.

Aniline spiked to Rmb12k/ton in mid-Feb (vs. Jan's Rmb10k/ton), driven by plant maintenance activities conducted by key manufacturers.

Given that Sunsine typically locks in quarterly pricing for its rubber accelerator products with major customers, while taking spot prices for raw materials, we expect near-term weakness in profit spreads for 1Q23F.

Profit spread expansion in quarters ahead will be dependent on the pace of downstream demand recovery, in our view.

Reiterate Add and TP of S$0.60

 
OngKhangChuenOng Khang Chuen, CFA, analystReiterate Add as valuations remain attractive at 1.7x FY24F ex-cash P/E, with a sustainable dividend yield of c.5%.

We finetune our forecasts and maintain our TP at S$0.60, still pegged to 0.7x FY23F P/BV (0.5 s.d. below 10-year historical mean).

Rerating catalysts include stronger recovery in downstream demand.

Downside risks include intensifying price competition affecting accelerator margins and margin erosion from sharp increase in input prices.

 

Full report here

You may also be interested in:


You have no rights to post comments

Counter NameLastChange
AEM Holdings2.3000.060
Avi-Tech Electronics0.265-
Best World1.7000.020
Broadway Ind0.0960.001
China Sunsine0.390-0.010
ComfortDelGro1.360-
Delfi Limited0.930-0.035
Food Empire1.420-0.020
Fortress Minerals0.280-
Geo Energy Res0.3600.020
GSS Energy0.0270.001
Hong Leong Finance2.470-0.010
Hongkong Land (USD)3.150-0.090
InnoTek0.440-0.005
ISDN Holdings0.3200.005
ISOTeam0.035-
IX Biopharma0.041-0.004
Jiutian Chemical0.024-0.001
KSH Holdings0.250-
Leader Env0.050-
Medtecs Intl0.1310.001
Nordic Group0.335-0.005
Oxley Holdings0.090-0.001
REX International0.1460.012
Riverstone0.665-0.020
Sinostar PEC0.135-0.003
Southern Alliance Mining0.600-
Straco Corp.0.500-
Sunpower Group0.220-
The Trendlines0.085-
Totm Technologies0.021-0.002
Uni-Asia Group0.815-
Wilmar Intl3.3600.030
Yangzijiang Shipbldg1.780-0.010
 

We have 1370 guests and no members online

rss_2 NextInsight - Latest News