China Sunsine Chemicals Holdings

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Fluctuation in price is expected but the correction seems a bit steep and overdone. I think the market is expecting too much for the 3Q results, which registered 7% increase in net profit yoy yet market seemed to regard it as losses of 17%. The fundamental is still sound and I foresee uptick in 4Q results and full year net profit of rmb 280m or thereabouts should be achievable. The current price represent ttm pe of about 8x and I think it represents value again. However, nobody can predict exact price movement so I won’t be surprised if price move even lower to test next support at 78.5 cents.
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(05-12-2017, 05:23 PM)DCF Wrote:
(05-12-2017, 04:59 PM)tiongkokgor Wrote: Sunsine share price fell from 88 cents to 82 cents today. Its share price high of $1.09 was registered on 13 Nov 2017.

Why?

Supply of rubber chemicals is tight and prices of rubber chemical are rising. The Chinese words below were  extracted from a Nov 2017 Chinese article at [font=宋体]http://market.cria.org.cn/25/ 40442.html[/font]

[font=宋体]“你见过轮胎企业一把手来助剂厂亲自找货吗? 以前我们见轮胎厂采购主管都难啊。现在他们一把手来, 也必须排队等货,实在是没有库存……”[/font]

What this means is that honchos of tire companies are personally going down to rubber accelerator factories to join in the queues to secure accelerator supplies for their tires. In the past, the factories don't even see the tire companies' head of purchases. The factories do not have much inventory.

This is the old news that pushed the market expectation up, and hence the price move up to $1.09. The Q3 result does not meet this expectation and hence the price come down. Given that it is end of the year, window dressing period, I think it is likely that price will continue to be depressed till the next reporting above expectation. The risk of them affected by shutdown is still there, as China move to hyper drive in environment clean up

Sunsine's products are essential addictives to tires. Shutdowns have to be carefully calibrated in order not to affect the huge tire industry in China. 

It is therefore important to monitor how Sunsine is performing against its competitors.

Based on Sunsine's Sustainability Report that came with its FY2016 Annual Report, we know that Sunsine is way ahead of its competitors in terms of pollution controls. 

3Q2017 was a record profit quarter for Sunsine if the forex loss was excluded. This is mainly because:

1) When supply of rubber chemicals are tight (due to reduced production or shutdowns), their prices will go up
 
2) Sunsine could supply to customers of other factories who couldn't get their supplies from these factories
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Growth
I now have a firm timeline of holding Sunsine for at least another 3 years. This would coincide with the materialisation of the expansion in production. The immediate expansion should take place early next year with the additional 10,000 tons IS and 10,000 tons TBBS. This would further scale up to total of 192,000 tons for all products by 2020 as compare to the current 152,000 tons. This is growth play and it is likely to pan out as planned because the 2 main competitors, Yanggu Huatai and the unlisted Kemai are having difficulties in securing the funding they projected for their expansion plan. Kemai has tried twice to list on Shanghai exchange and apparently it is unlikely to be successful. Yanggu has tried to issue placement shares but was rejected and has instead issue rights shares and the capital raised was significantly lower than it intended. It is likely that Yanggu could now use the fund to relocate the factory but no fund for expansion. Even if both the competitors managed to secure the desire funds somewhat, by the time their expanded production line is ready, they will be at least 3 years behind Sunsine, hence, I believe I can hold on to Sunsine for at least 3 years and monitor periodically in the interim and reassess in 3 yeas.

Market
For Sunsine’s growth plan to materialise, its customers must also be able to grow. Sunsine’s main customers are domestic and international tyre manufacturers. Currently, China is facing overcapacity in term of tyre manufacturing but this is changing fast with the closing down of the factories that did not meet environmental protection measures. The overall tyre market is expanding due to growth in car population. With the expansion, the need for replacement tyres is also growing and it account of 70% of all tyre sold. The growth is projected to continue for at least the next few years.

Balance sheet strength
Sunsine’s balance sheet is getting stronger since its listing in 2007. It has no debt and has cash equivalent of about 19 cents per shares. The NAV stood at rmb 1972m as of 9M2017. It has grow exponentially since becoming debt free in 2016 and the trend is likely to continue.  
Net profit
Similarly, Sunsine has achieved net profit of around rmb 200m since 2014. This is around the time that China took the environment protection seriously and it mark the start of small players exiting the market. In 2016 and this year, the environment protection measures started to get more stringent and inspection frequencies intensified. In the past, some manufacturers resorted to shutting production when inspectors were in town and they re start production when inspectors left. This could no longer be done and looking at 9M2017’s figure, it is almost a foregone conclusion that Sunsine will achieve record profit this year since its listing in 2007.

Dividend
One of my main reasons behind holding Sunsine is its constant dividend. I wouldn’t say it is generous but I can sense that the company is prudence in its dividend policy. From the payout history, we can see that the company is willing to pay dividend even in the earlier years when the profits were not so high. What is note worthy is that it started to pay higher dividend since 2014 when the profit started to rise substantially for the reasons cited above. In addition, it has announced its dividend policy of paying at least 20% of net profit for FY17 and FY18. This would translate to at least sgd 2.5 cents if eps is sgd 12.5 cents (ttm eps is 12 cents). For the first time, it also pay out interim dividend in June this year and going forward, I am cautiously optimistic that the dividend rate should continue to rise.

As of the latest closing price, the correction is almost 25% from the high of 1.09 and in view of the above, I have decided to act and added a bit more at 83 cents. Seeing the price went up on Friday, I am feeling a tinge of 'indecisiveness' in myself as I had inclined to collect more but didn't. However, I reminded myself not to bottom fishing and there is no telling as the price could still drift downward. I may still have chance to buy at lower price and I should be equally satisfy if the price resume its uptrend. I think 83 cents represents value as based on ttm eps of sgd 12 cents, the pe is only 6.92x. This compare to Yanggu Huatai's 17x pe. Of course, there is wide gap in the valuation for stocks listed in SGX and Shenzhen. Nevertheless, I aim for at least 10x pe for Sunsine eventually and it should not be unrealistic.


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Good for sunsine, new shandong province regulation on new plant investment effectively prevent new entrants from coming in, further enhance their pricing power

http://m.shandong.gov.cn/art/2017/12/27/...nstalled=0
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(28-12-2017, 09:34 AM)DCF Wrote: Good for sunsine, new shandong province regulation on new plant investment effectively prevent new entrants from coming in, further enhance their pricing power

http://m.shandong.gov.cn/art/2017/12/27/...nstalled=0

Hi DCF,

What are the measures mentioned in this report that are different from earlier announcements?

There were many reports that had mentioned about strict enforcement against pollution by the authorities which bode well for China Sunsine as it is an early adopter to green manufacturing.

In addition to the strict enforcement, Sunsine's biggest competitors like Yanggu Huatai and Tianjin Kemai also encountered shortage of funds for capacity expansion and plant relocation.
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quite a few. From what I can recollect:

Specific investment size before being consider - effectively stop all small investment
No more new plant unless it is one aligned with the country next 5 year plan - So difficult to expand while Sunsine has quite a few expansions already going on
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Just drop by China Sunsine’s website and saw the following speech by SGX Head of Equities, Mr Chew Surat during Sunsine 10th anniversary. A good speech that summaries Sunsine achievements.

http://www.chinasunsine.com/en/wp-conten...me-SGX.pdf
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China Sunsine has been doing well for all aspects except the “steam” business. They incurred a loss of $1.6 million in 2016. Would it be a startup loss? Any view from the rests? Thanks.
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(18-01-2018, 10:57 AM)Young Investor Wrote: China Sunsine has been doing well for all aspects except the “steam” business. They incurred a loss of $1.6 million in 2016. Would it be a startup loss? Any view from the rests? Thanks.

I may have missed it but I can't find the above in AR16 and 4Q16 reports. In any case, the majority of the steam generated are meant for internal consumption and any excess will be channelled to national grid for sale to external party. I think something like that was mentioned in one of the results briefings I attended. The latest is that they are adding one more boiler to cope with higher demand of steam. I think that is positive. 

In the upcoming FY17 results to be released in Feb 2018, I would cast the spotlight on top shareholders list. With the sales of treasury shares in May 2017, some 'institution' investors should made the top 20 list even if their holding is as low as around 1 million range. With extremely high volume (30m plus if I am right) traded right after the trading resumed following the sales of treasury shares, I want to see whether top holders like Robert Stone, Chia Kee Koon etc continue their original holdings, reduce/increase or bail out. Theses guys are holding in the range of 10m to 20m and their actions say a lot, especially with the subsequent developments when price hit the high of 1.09 and 'flash crash' to 92 cents on 14 Nov 2017 and further down to 82 cents on 6 Dec 2017. 

Of course, the price has slowly inch up again but I shall not focus on the share price, at least not at the moment. I am expecting to see stronger cash flow, higher ROE and eps. My holding is somewhat diluted with the sales of treasury shares and before the sales, I am confident eps will be at least 12.5 cents to 13 cents and now I think 12.5 cents may still be achievable. I am looking at dividend payout of at least 2.5 cents (including the .5 cents already paid) but somehow, I am inclined to believe that it would be more.
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(19-01-2018, 11:28 PM)Bluechipfan Wrote:
(18-01-2018, 10:57 AM)Young Investor Wrote: China Sunsine has been doing well for all aspects except the “steam” business. They incurred a loss of $1.6 million in 2016. Would it be a startup loss? Any view from the rests? Thanks.

I may have missed it but I can't find the above in AR16 and 4Q16 reports. In any case, the majority of the steam generated are meant for internal consumption and any excess will be channelled to national grid for sale to external party. I think something like that was mentioned in one of the results briefings I attended. The latest is that they are adding one more boiler to cope with higher demand of steam. I think that is positive. 

In the upcoming FY17 results to be released in Feb 2018, I would cast the spotlight on top shareholders list. With the sales of treasury shares in May 2017, some 'institution' investors should made the top 20 list even if their holding is as low as around 1 million range. With extremely high volume (30m plus if I am right) traded right after the trading resumed following the sales of treasury shares, I want to see whether top holders like Robert Stone, Chia Kee Koon etc continue their original holdings, reduce/increase or bail out. Theses guys are holding in the range of 10m to 20m and their actions say a lot, especially with the subsequent developments when price hit the high of 1.09 and 'flash crash' to 92 cents on 14 Nov 2017 and further down to 82 cents on 6 Dec 2017. 

Of course, the price has slowly inch up again but I shall not focus on the share price, at least not at the moment. I am expecting to see stronger cash flow, higher ROE and eps. My holding is somewhat diluted with the sales of treasury shares and before the sales, I am confident eps will be at least 12.5 cents to 13 cents and now I think 12.5 cents may still be achievable. I am looking at dividend payout of at least 2.5 cents (including the .5 cents already paid) but somehow, I am inclined to believe that it would be more.

The RMB1.6 mil loss info can be found in the segment reporting table in page 14 of the 4QFY16 results announcement.

The table also disclosed that RMB72 mil and RMB4.8 mil were internal and external sales respectivley. Maybe some upside to the heating power/steam business in the future?

Sunsine's competitors, Yanggu Huatai and Tianjin Kemai, do not have internal steam generation capabilities.
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