KGI Research analyst Chen Guangzhi has maintained “outperform” on China Sunsine with a higher target price of 68 cents from 53 cents previously, as the company could see a turnaround in profitability in the FY2021, thanks to the upcycle in commodity prices and capacity ramp-up.
That said, Chen says average selling prices (ASPs) for rubber chemicals could fall in the 2HFY2021, although China Sunsine’s higher productivity in insoluble Sulphur and anti-oxidant is expect to offset the potentially weaker price later in the year.
In addition, Chen is positive on the company’s management vision, which led to a “well-timed ramp-up of capacity”. The ramp-up in capacity helped provide a buffer against the cyclical downturn, he says in a May 20 report.
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“Thanks to the commercial operation of 20,000 tonnes of TBBS in 2HFY2020, the 13% y-o-y increase in sales volume propelled the performance turnaround,” he writes.
“The capacity expansion during the downturn in 2019 was a correct strategic move and proves management’s foresight and vision,” he adds.
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Risks to the counter include a potential suspension work order by the authorities in preparation for the 2022 Beijing Winter Olympics, which would be held in early February. It is currently unknown whether 4QFY2021 production will be affected, he writes.
Shares in China Sunsine closed 1.5 cents higher or 2.9% up at 53 cents on May 24.
