Domestic sales volumes however, saw a marginal 1% y-o-y decline, to which Mo and Cheong expect to improve as China’s target stimulus measures are to aid consumption recovery.
In 2024, China’s total automobile sales was up 5% y-o-y to 31.4 million units.
According to Mo and Cheong write in their Mar 26 report, China is the world’s largest tyre producer accounting for over 40% of global output, suggesting plenty of demand for China Sunsine, both domestic and international.
More importantly for China Sunsine, China’s rubber tyre exports grew 3.3% y-o-y to 1.38 million tonnes in January to February, according to China’s tyre industry data service provider Tireworld.
They add that increased adoption of electric vehicles could boost new vehicle sales as well.
Meanwhile, according to Sublime China Information (SCI), average selling prices (ASP) for rubber accelerator between January and March were slightly lower than in 4QFY2024, while average aniline prices dropped by around 6%.
“We expect gross margin to remain stable y-o-y at around 25% in 1HFY2025, supported by cost savings from the ramp-up of new Mercaptobenzothiazole (MBT) production in 4QFY2024, which may partially offset the intensified market competition,” write the analysts.
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For the FY2024, China Sunsine reported earnings 14% higher y-o-y at RMB424 million ($75.6 million), beating the UOBKH analysts' and consensus forecasts by 12% and 14% respectively.
Mo and Cheong write: “The beat was due to lower-than-expected R&D expenses, which fell 28% y-o-y or RMB33 million due to the completion of R&D activities, and foreign currency gains of RMB28 million.”
Similarly, group revenue of RMB3.5 billion in revenue, driven by record-high sales volume and offset by a 2% y-o-y decline in ASPs, matched the analysts’ forecast.
As a result, the group’s gross margin expanded 1.3 percentage points (ppts) y-o-y to 24.2%.
With a healthy cash position of RMB2.07 billion, the group has announced an attractive dividend yield of 6% for the FY2024, translating to RMB2.18 a share or 77% of its market cap.
“This provides ample room for Sunsine to potentially raise its dividend and continue to perform share buybacks,” write Mo and Cheong.
Management has highlighted that China Sunsine maintained its position as the world’s largest accelerator producer, with a stable market share of 23% in 2024. In China, it also upheld its leadership with a market share of 35%.
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To this end, the analysts note that with a rubber accelerator capacity of 117,000 tonnes, the group is well-positioned to expand its customer base of over 1,000 clients across more than 40 countries, including more than 75% of the top 75 global tyre makers such as Bridgestone, Goodyear and Michelin.
Mo and Cheong also see that phase two of the insoluble sulphur project, which is about 30,000 tonnes, is set to begin trail runs in the 1HFY2025, which will meet rising market demand.
They add: “Additionally, phase two of the 60,000-tonne MBT project is in the pipeline. As MBT is a key intermediary product to produce about 80% of all types of rubber accelerators, this will enhance cost savings and reduce reliance on external suppliers.”
With this, Mo and Cheong have raised their FY2025 and FY2026 earnings estimates by 9% and 6% respectively, after factoring in better-than-expected gross margins from the MBT capacity expansion, which they note “improves self-sufficiency” as MBT is the main feedstock for most types of rubber accelerators.
Net margins for Chin Sunsine are also raised 1 ppts to 2 ppts on lower R&D expenses.
They conclude: “The stock trades at an attractive valuation of 1.4 times ex-cash FY2025 price-to-earnings ratio (P/E).”
Share price catalysts noted by the pair include new manufacturing capacities commencing production, higher ASPs for rubber chemicals and lastly, higher-than-expected utilisation rates.
As at 3.06 pm, shares in China Sunsine Chemical are trading 0.5 cents lower or 0.93% down at 53.5 cents.
