China Sunsine Chemicals Holdings

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thanks. Accordingly, China Sunsine gained market share over the past years partly due to stricter environmental enforcement and happened that Sunsine has invested a lots in preparing and meeting stricter environmental requirement.

This leads to next question, with assumption more investment are needed for environmental requirement, is current margin can be maintained.

According to NRA report: 
"estimated capex to RMB200m per annum over our forecast horizon. This is to factor in more aggressive capex spending following tighter environmental restrictions."

Is the forecast realistic? If so, is it likely will lead to lower margin?

NRA was being conservative in assuming an annual capital spending of RMB 200m for stricter pollution control requirements.

This will give rise to RMB 1,000m in the five-year forecast period ending 2021, which is very high compared with the original cost (RMB 594m) of plant and machinery in use as at end-2016.

Moreover, page 10 of Sunsine's sustainability report shows that past capital spending on environmental protection was much lower, RMB 29.69m in 2015 and RMB 12.73m in 2016.

NRA's estimate of cash balance as at end-2021 is RMB 926m. It will be more if capital spending is not as much as RMB 200m a year.

Four to 10 years is the lifespan of Sunsine's plant and machinery. The depreciation rate in 2016 was 12%. The RMB 1,000m cumulative capital spending alone will give rise to depreciation of RMB 120m in 2021, yet NRA's projected depreciation in that year for all assets is RMB 139m only.

The assumption on lower depreciation will result in smaller cash balance.

Attention to pollution control is the key to viability. 

Tyre majors require suppliers to adhere to green practices. Sunsine, which started producing rubber accelerators in 1994, became supplier to Hankook in 1997, Kumho and Yokohama in 2,000. In 2003, Bridgestone, world's largest tyre maker, accredited Sunsine; and the rest, such as Pirelli, Michelin, Goodyear, Cooper, followed suit.