While China Susine did not disclose its gross profit margin (GPM), the analysts estimate that it likely came in at 21%-22%.
Citing latest prices from chemical data provider Sci99, Tan and Ong note that rubber accelerator ASPs remained on a downtrend throughout October to November, down 15%-20% y-o-y.
To this end, the analysts believe that China Sunsine’s 4QFY2024 GPM could remain flat or decline slightly on a q-o-q basis, with the full year’s GPM coming in at around 23%.
The analysts also point out that China’s industrial tyre production grew well in 3QFY2024, rising 2% q-o-q and 10% y-o-y. With China Sunsine likely maintaining its flexible pricing strategy in FY2025, Tan and Ong think efforts to proactively defend and grow market share could weigh on meaningful GPM upside.
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“Potential ramp-up in industry capacity in FY2025 could also be an impediment to margin expansion, in our view,” they add.
CGSI continues to like China Sunsine for its undemanding valuations at 1.5x 2025 ex-cash P/E, decent FY2025 yield of about 6% and increased focus on share buybacks.
As at 11.24am, shares in China Sunsine are trading flat at 44 cents.
