China Sunsine Chemical Holdings (CSCH), probably one of the largest rubber accelerator producers in both China and the world, garnered 8% of the global market share and 19% of the China market according to FY07 production. It manufactures a wide range of accelerators which are essentials to shorten the processing of raw rubber to cured rubber from hours to minutes. Cured rubber can then be made into tyres and other rubber related products. CSCH debuted on Mainboard on 5 July 2007 at $0.39 per share.
Its annual capacity of accelerators will be boosted to 50k tonnes by end of 2008, doubling its FY04’s annual capacity of 20.5k tonnes. With rising affluence of the Chinese, CSCH expects to ride on the growth of car population in China as car ownership per 100 people is only 5 compared to 75 cars per 100 Americans.
Results skewed by Beijing Olympics
For the 3 months ended 30 September 2008, revenue grew 67% y-o-y with earnings surging 406%. CSCH attributed this phenomenal growth in earnings to a big jump in average selling price of 82% from Rmb19,982 to Rmb36,274 even though sales volume fell 8%. The rise in price was due to the Beijing Olympics, which impacted some competitors’ production and resulted in CSCH’s products being in hot demand. The sales volume decreased because of affected raw materials supply arising from the various transportation restrictions imposed during the Olympics period. For the 9 months ended 30 September 2008, revenue grew 50% y-o-y with earnings soaring by 85%.
Total assets stood at Rmb672m with cash and cash equivalents amounting to Rmb181m. This cash alone was more than its total liabilities of Rmb133m which included short-term debt of Rmb41m. Of this short-term debt, Rmb37m came from an interest-free loan from a director. In its 3Q08 report, its finance costs for the 9 months was only a negligible Rmb0.1m.
As with all S-chips, CSCH’s share price has been halved since the onslaught of the financial crisis. Closing price as at 15 November 2008 was $0.195 (a 50% discount to its IPO price of $0.39), with 490.9m shares outstanding. Market capitalization was equal to $95.73m, equivalent to Rmb430m. The market capitalization was 0.8x its net assets (total assets minus total liabilities) of Rmb539.2m. It is currently trading at a historical PE ratio of 5.6x and PB ratio of 0.8x.
Earnings have been rising from FY04 till FY07. Though the outlook for 4Q08 is not rosy, company expects its 4Q08 revenue to return to normalcy, with lower sales volume and average selling prices compared to those of 3Q08.
Confident of profitability despite downturn
A large part of CSCH’s revenue depends on the tyre industry which has been mired by the global economic slowdown. With outlook still uncertain, CSCH is hopeful that the potential growth in markets like Brazil, China, India and Russia may offer some buffer.
With its strong financial position, unrivalled production capacity and diverse customer base numbering 600 which include all the top 10 global tyres manufacturers, CSCH remains confident of its profitability even in such trying times. Chairman Xu Cheng Qiu, a veteran with more than 30 years in the industry, believes “In a down cycle, customers are more likely to stick with you if your pricing is reasonable and you continue to provide stable and reliable supply.”
20 NOVEMBER 2008
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