CGS-CIMB Research is keeping its “add” call on China Sunsine Chemical Holdings with an increased target price of 77 cents from 68 cents previously.
Analyst Ong Khang Chuen likes the stock as the average selling price (ASP) of its products have increased, which should increase profits in FY2021, while the stock’s valuation is deemed attractive at 2.5 times FY2022 PE (ex-cash).
See: CGS-CIMB ups China Sunsine's TP on 'strong start to 2021'
Following the approximately 20% correction in rubber accelerator prices between mid-April to early-August, Ong notes that the pricing has resumed its uptrend since and has picked up pace in October. According to sci99.com, rubber accelerator prices averaged RMB21.2k/ton in September, representing an increase of 8.6% m-o-m and 42% y-o-y, and reached RMB26.2k/ton during the week of Oct 11.
“We believe that the stronger ASPs are mainly due to higher input costs, exacerbated by lower industry supply due to environmental policies and power curbs impacting the production of some industry players. Meanwhile, end-products continued to see healthy demand, supported by exports and inventory replenishment of downstream industries. We expect rubber accelerator prices to remain high in 4Q2021,” says Ong.
With that, the analyst expects China Sunsine to benefit from the uptrend in accelerator prices and forecasts stronger profit margins in 4QFY2021. “While key raw material (aniline) prices have also seen an uptick in recent months, we believe this is more than offset by the even-stronger ASP gains. Accordingly, we raise FY2021 net profit forecast to RMB470.5 million (+115% y-o-y),” says Ong.
Additionally, Ong forecasts a net profit of RMB93 million for the 3QFY2021 period, representing a 34% q-o-q decrease, but a 55% y-o-y increase. This reflects the sequentially weaker ASPs compared to 2QFY2021, although pricing remained high compared to a year ago.
“We expect utilisation rate to remain optimal for Sunsine in 3QFY2021 as it continues to grab market share from smaller players by capitalising on its strong brand reputation and product quality. We forecast a revenue of RMB777 million (-15% q-o-q, +30% y-o-y) for the quarter and expect China Sunsine to achieve a gross profit per tonne of RMB4,760 in 3QFY2021 (-22% q-o-q, +30% y-o-y),” says Ong.
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As at 1.00pm, shares in China Sunsine are trading 3.9% higher at 54 cents, or 0.76 times FY2021 book with a dividend yield of 3.96%.
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