• UOB Kay Hian's alpha picks portfolio, which is updated every month, bears watching. It has done well. "Our Alpha Picks portfolio has now outperformed the STI in 12 out of the past 15 months," UOB KH triumphantly says in its latest note. • In its portfolio is a stock that has not done too well: China Sunsine (-9% year-to-date). China Sunsine (market cap: S$425 million) has strong merits though: It is only 2X PE ex-cash, has a dividend yield of 5%, and a growth story in 2025, according to UOB KH.  • There is 30% upside to UOB's current price target for China Sunsine (see chart above), which sells its chemical products to more than 3/4 of the world’s top 75 tyre makers. Read more below .... |
Excerpts from UOB KH report
Despite posting a solid 1.2% mom increase for Jan 25, our Alpha Picks portfolio underperformed the STI by 0.6ppt on an equal-weighted basis as, again, the index performance was driven up by the banks.
However, our Alpha Picks portfolio performed better on a market cap-weighted basis, increasing 2.1% mom and beating the STI by 0.3ppt.
Our Alpha Picks portfolio has now outperformed the STI in 12 out of the past 15 months.
ACTION
• Multiple changes to our portfolio. Our additions of PropNex and ComfortDelgro are both premised on better earnings expectations for 2025 with a potential special dividend for the former.
We remove SATS, MINT and GENS from our portfolio as we see a lack of near-term share price catalysts.
| China Sunsine - Buy |
Analysts: John Cheong & Heidi Mo
• Potential improvement in demand and ASPs from stronger Chinese economy. China’s latest stimulus measures have improved investor sentiment and may boost consumer confidence.
In turn, Sunsine’s demand and ASPs could see an uptick in the coming months. |
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John Cheong, analyst• Good dividend yield of around 5% backed by strong balance sheet. Sunsine provides an attractive yield of around 5%, supported by its robust cash balance of Rmb1,751m (+4% hoh) as of 1H24.
This translates to Rmb1.82/share (S$0.34/share) or around 70% of its market cap.
This provides ample room for Sunsine to potentially raise its dividend and continue to perform share buybacks.
Sunsine has bought back 3.8m shares for 2024 since the start of its 2024 share buyback plan on 26 Apr 24.
|
CHINA SUNSINE |
FY18 |
FY19 |
FY20 |
FY21 |
FY22 |
FY23 |
|
Dividend/share |
5.5 |
1 |
1 |
2 |
3 |
2.5 |
Note: In FY19, China Sunsine carried out a share split where 1 share became 2.
• Expect steady volume growth from strong overseas demand. Sunsine achieved stronger rubber chemical sales volume (+6% yoy) in 1H24.
This was backed by better capacity utilisation rates for tyre manufacturers based in Southeast Asia, partially offset by lower domestic demand.
As more Chinese tyre manufacturers look to Southeast Asia to set up factories or beef up production, we expect international sales volume to grow further.
| • Maintain BUY. Our target price of S$0.58 is pegged to 7.5x 2025F PE or +1SD above historical mean PE. Sunsine is trading at an undemanding 2x 2024 ex-cash PE, and we expect it to capture the potential demand recovery in 2025. SHARE PRICE CATALYSTS • Events:
• Timeline: 3-6 months. |
