China Sunsine Chemical Holdings Ltd (SGX: CH8) is a leading speciality rubber chemicals producer. It also ranks as the world’s largest producer of rubber accelerators, and China’s largest producer of insoluble sulphur. The company serves more than 65% of the top 75 tire makers in the world, including brands such as Bridgestone, Michelin, Goodyear, and Pirelli.
China Sunsine was one of the best performers in Singapore’s stock market from September 2008 to September 2018. During that time frame, its share price rose more than 380% to S$1.05 on 24 September 2018. At the time of writing, China Sunsine’s share price is S$1.29, up by 23% from S$1.05. Behind the company’s long-term share price appreciation is a strong business. Here are three things to like about the company.
Good recent results
China Sunsine announced its 2018 third-quarter financial results in early November and reported that its revenue rose 22% year-on-year to RMB 775.6 million while net profit surged 85% to RMB 143.4 million. Free cash flow for the quarter ballooned more than 400% to RMB 245 million.
Increases in both sales volume and average selling price (ASP) of the company’s products led to the year-on-year revenue growth of 22% in 2018’s third-quarter; China Sunsine’s sales volume and ASP climbed by 9% and 12%, respectively, in the reporting period. On a quarter-on-quarter basis, however, the company’s ASP fell by 11% mainly because of a decrease in raw material prices and weakening demand from domestic tire makers.
In the first nine months of 2018, China Sunsine’s net profit jumped by 154% to RMB 532.6 million, with revenue climbing 35% to RMB 2.51 billion.
China Sunsine’s balance sheet was rock-solid. As of 30 September 2018, it had cash and bank balances of RMB 822.3 million with no debt. The robust balance sheet should enable the company to weather through harsh market conditions, if any.
Tailwinds ahead
Even though the ASP for rubber chemicals started to fall since the end of June 2018, China Sunsine’s management noted in the 2018 third-quarter earnings update that the ASP had stabilised in October. The company added that Chinese tire makers have also started to increase their production utilisation rate in the fourth quarter of the year.
China is also considering a tax cut to revive its slowing automotive market. Such a move could indirectly increase China Sunsine’s ASP of rubber chemicals due to stronger demand from tyre makers.
Furthermore, there are tailwinds from higher production capacity at China Sunsine’s factories. The company announced at the end of November 2018 that it had received regulatory approval for a trial run of its 10,000-tonne insoluble sulphur production line. Once the trial run is successfully completed, commercial production will start. Meanwhile, a 10,000-tonne expansion in TBBS rubber accelerator production is currently at the finalisation stage for China Sunsine and is expected to receive approval soon. Collectively, these developments could boost the company’s annual production capacity by 13% to 172,000 tonnes of rubber chemicals.
Low valuation
At China Sunsine’s share price of S$1.29 right now, the company has a low price-to-earnings ratio of just around 5. In comparison, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has a PE ratio of around 11.
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