China Sunsine to gain from crackdown on environmental protection policies and rules

Phillip Securities is maintaining China Sunsine Chemical at “buy” with higher target price of $1.97 given China is strengthening the enforcement of environmental protection policies and rules.

As a result, more rubber chemical plants are expected to shut down before new capacity from large companies enter the market and the shortage of supply will persist in FY18 to benefit Sunsine, says Phillip.

“We revise upwards FY18 EPS to 23.3 cents from 16 cents previously and FY19 EPS to 22.4 cents from 17.7 cents on higher margins,” says analyst Chen Guangzhi in a Monday report.In 1Q18, the total sales volume grew 11.7% y-o-y to 36,500 tonnes, due to the ramp-up as production stopped work for the Lunar New Year holidays. Meanwhile, overall ASP was still on the upswing, reaching RMB23,200/tonne.

Gross and net profit margin came in at 34.9% and 17.4% respectively, attributable to the growth in ASP and reduction of tax rates.

According to the Aniline Price Index, 1Q18 price level increased by 26% y-o-y. In addition, the group was granted “High-tech Enterprise” status, leading to a reduction of tax rate to concessionary rate of 15% from headline rate of 25%.

Approval for the trial run of the newly-added capacity of accelerator TBBS and Insoluble Sulphur plant is expected to arrive by 2Q18. Each trial run could last for one to three months.

“Optimistically, both plants could start a full operation by 4Q18,” says Chen who expects the new capacities to have their full-year contribution only in FY19.

Phillip is revising FY18 EPS upwards to 23.3 cents from 16 cents previously and FY19 EPS to 22.4 cents from 17.7 cents on higher margins.

As at 3.50pm, shares in China Sunsine are up 1 cent at $1.49 or 6.3 times FY18 earnings.