UOB Kay Hian analysts Heidi Mo and John Cheong have kept their “buy” call on China Sunsine Chemical although they have lowered their target price to 46 cents from 57.5 previously.
The target price is pegged to a multiple of 6 times the company’s FY2024 P/E, which is its long-term average mean.
Referring to China Sunsine’s business update for the 3QFY2023 ended Sept 30, the analysts note that the lower quarterly revenue was due to lower average selling prices (ASPs) of rubber accelerators and the company’s newly-adopted flexible pricing strategy. This was partly mitigated by a record-high quarterly sales volume, which grew by 16.3% y-o-y to 56,114 tonnes.
For the 3QFY2023, China Sunsine’s revenue fell by 5% y-o-y to RMB875 million ($166.4 million). The ASP in the 3QFY2023 fell by some 18% y-o-y to RMB15,430 per tonne.
The company’s net profit fell by 49.2% y-o-y to RMB65 million for the 3QFY2023, bringing its 9MFY2023 net profit to RMB259.6 million, or 53% of the analysts’ FY2023 estimate.
In their report dated Dec 14, Mo and Cheong see positives for the company including a potential near-term benefit from the higher ASPs of rubber accelerators, higher vehicle sales and continuous expansion projects undertaken, as well as the company maintaining its market leadership and strong balance sheet.
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However, they have lowered their gross margin assumptions for FY2023 to FY2025 to 23% to 24% from 29% on account of price adjustments in the face of competitive pressures in the industry. As a result, their earnings estimates have also been lowered by 34%, 33% and 27% for the FY2023, FY2024 and FY2025 to RMB324 million, RMB388 million and RMB426 million respectively.
As at 3.24pm, shares in China Sunsine are trading 1 cent lower or 2.5% down at 39 cents.
