(03-03-2014, 09:40 PM)CityFarmer Wrote: [ -> ]I am not so sure on your formula, but let's assume the numbers are right.
Will you happy with the "ROA" of 7.3%, with cost of capital is more than 6%? FYI, the liquidity in China is tightening, and the cost of capital might hike anytime from now, IMO.
If you are happy with that. I wish you all the best, sincerely.
The formula on ROA can be found in other texts too -- it is not mine.
I share your view that rising interest rate is a valid concern for companies that borrow.
There are reasons to believe that Sunsine is in a good position to weather a storm.
First, the RMB 230m loans are not excessive relative to the RMB 813m equity.
Second, besides cash holdings of RMB 107m, there were notes receivables amounting to RMB 158m (note 2 to statements of financial position). These were issued by financial institutions as security for payables of some customers. As the note issuers are obliged to pay Sunsine cash any time before maturities, there was ready cash of RMB 265m (RMB 107m cash + RMB 158m notes receivables) had lenders demanded repayments of the RMB 230m outstanding loans in full -- loan default is therefore unlikely.
Stringent credit management has resulted in negligible impairment of trade receivables. In 2012, RMB 0.05m was impaired for revenue of RMB 1,417m. The year before, it was RMB 0.5m on sales of RMB 1,175m. (We need to await 2013 annual report to know the amount impaired last year.)
Sunsine has not issued any new shares after raising RMB 264m from the IPO in 2007. It has relied on retained earnings and RMB 230m bank loans to fund the following costing RMB 1,233 m in total:
capacity additions (RMB 655m) (raising capacity from 26,000 tonnes to 115,500 tonnes);
share buyback (RMB 28m);
dividend payment (RMB 160m); and
trade receivables (an increase of RMB 390m).
Stringent credit management has not resulted in unused accelerator capacity. The only weak spot so far is the newly-introduced 6PPD, as it takes time for accreditation. The rising quarterly sales volume of anti-oxidants (comprising 6PPD and TMQ) suggests gradual acceptance of 6PPD, however:
2011……………………..2,061 tonnes of TMQ
2012……………………..5,183 tonnes of TMQ & 6PPD
2013..................12,281 tonnes of TMQ & 6PPD
1Q 2013...............2,072 tonnes of TMQ & 6PPD
2Q 2013...............2,900 tonnes of TMQ & 6PPD
3Q 2013...............3,489 tonnes of TMQ & 6PPD
4Q 2013………………..3,820 tonnes of TMQ & 6PPD
Part of Sunsine assets are investments (such as the new bases in Weifang and Dingtao) for future growths. The fixed cost of Weifang is high as only 14,000 tonnes of accelerators are being produced now against a possible 40,000 tones. The same goes for 6PPD. As productions step up, ROE as well as ROA (if it is the best measure of profitability) should be higher than now. Demand for rubber chemicals, which are basic materials for the rubber industry, should rise. Sunsine’s strategy for gaining market share seems to have worked so far.