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UOBKH maintains 'buy' on China Sunsine with higher TP of 57.5 cents on improved outlook

Khairani Afifi Noordin
·2-min read

The company's expansion projects are expected to be completed by end-2023 and are likely to lift sales volume when operational.

UOB Kay Hian analysts Heidi Mo and John Cheong have maintained “buy” on China Sunsine Chemical Holdings QES with a higher target price of 57.5 cents from 45 cents previously, citing less challenging outlook for the company following China’s reopening.

The analysts note that China Sunsine’s 2HFY2022 ended December results were in line with their expectations. Its net profit for the period fell by 11% y-o-y to RMB214.9 million ($41.42 million), bringing 2022 core profit to 95% of UOBKH’s estimates.

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China Sunsine’s 2HFY2022 performance came on the back of lower revenue of RMB1.802 billion, 8.4% lower y-o-y due to decline in sales volume and decrease in average selling prices (ASPs) of rubber accelerators.

For FY2022, overall ASP increased by 8% y-o-y to RMB20,237 per tonne, as China Sunsine was able to pass on the increase in raw material prices to customers, the analysts add. This drove the 2.7% y-o-y rise in 2022 revenue, offset by the 5% lower sales volume.

Due to the lower recorded revenue, China Sunsine’s gross profit fell by 4,9% y-o-y to RMB469.9 million in 2HFY2022. However, the period’s gross margin expanded by 1 percentage point y-o-y, with a more favourable sales mix consisting of a higher proportion of antioxidant products.

China Sunsine’s full-year gross and core profit margins also improved by 2.3 percentage points and 1.3 percentage points respectively.

The analysts highlight that China Sunsine had in October last year commenced the construction of a project with a 20,000 tonnes per year capacity for an intermediate material used to produce many kinds of accelerators. The construction of phase two of an insoluble sulphur project will also increase the company’s insoluble sulphur capacity by 50% to 90,000 tonnes per year.

These projects are expected to be completed by the end of this year and are likely to lift sales volume when operational, Mo and Cheong add.

Due to lower expectations for crude oil price according to the US Energy Information Administration, UOBKH has tweaked its FY2023 and FY2024 gross margin assumptions to 30% and 29.1% respectively.

“We have also raised FY2023 and FY2024 earnings estimates by 6% and 7% to RMB491 million and RMB575 million respectively, on account of an improved outlook for automobile sales in China, which is expected to grow at 4% y-o-y in 2023,” they add.

As at 9.33am, shares in China Sunsine are trading flat at 47 cents.

 

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