China Sunsine Chemicals Holdings

(16-11-2014, 09:27 PM)CityFarmer Wrote: It is consistent with my view. The company performance is highly depended on ASP, and the ASP might pull back, upon competitors resume production, as early as 4Q this FY. The pull back can be as bad as -40%, as experienced by last occurrence in FY2008/2009.

(not vested, but monitoring closely)

I believe the 40% decline you cited was the plunge in 2009, when accelerator ASP of RMB 16,500/tonne was 37% lower than RMB 26,200/tonne in 2008.

The high ASP in 2008 was the result of curbs on industrial production and movement of goods in July and August for the Beijing Olympic Games. 3Q 08 ASP was an elevated RMB 36,800/tonne; and it crashed 54% to RMB 16,800 a year later. The spike and subsequent decline are as follows:

1Q 08……21,100
2Q 08…..24,700
3Q 08…..36,800
4Q 08…..23,400
1Q 09…..15,200
2Q 09…..16,600
3Q 09…..16,800
4Q 09…..16,700

The unusual price movement was the result of extraordinary measures taken to have clean air for the duration of the Games. A repeat seems unlikely.

In more recent years, ASP hit a high of RMB 21,300 before Sunisne cut prices in 4Q 2011 to grow market share:

2Q 11…..21,300
3Q 11……21,200
4Q 11.....19,600 (Price cut)
1Q 12……18,800
2Q 12……18,900
………………………..
4Q 13……18,200
1Q 14……19,300
2Q 14…...20,400
3Q 14…….22,800

Sunsine has added 12,000 tonnes bringing its total accelerator capacity to 87,000 tonnes by the end of this year. By then, it will provide 20% of world’s total accelerator output. As 61% of rubber is consumed by tyre companies, and as Sunisne sells almost all its accelerators to tyre makers, around 30% of tyres produced worldwide will have Sunsine’s input.

Sunsine has shared before that it would maintain gross profit margin of accelerators at a reasonable level despite its dominance in the sector.

If ASP of accelerators declines too much, other accelerator producers may suspend production and supply will reduce. Sunsine can cope better because of economies of scale, experience in waste treatment, low capital costs of the 12,000-tonne new output, and lower steam production cost.

It should also be noted that Sunsine is less reliant on accelerator sales now, with an aggregate capacity of 65,000 tonnes of anti-oxidants and insoluble sulphur against 87,000 tonnes of accelerator capacity. Its utility business in Shanxian is also set to generate decent profit selling steam to other factories.

(17-11-2014, 09:14 AM)portuser Wrote: I believe the 40% decline you cited was the plunge in 2009, when accelerator ASP of RMB 16,500/tonne was 37% lower than RMB 26,200/tonne in 2008.

The high ASP in 2008 was the result of curbs on industrial production and movement of goods in July and August for the Beijing Olympic Games. 3Q 08 ASP was an elevated RMB 36,800/tonne; and it crashed 54% to RMB 16,800 a year later. The spike and subsequent decline are as follows:
...
The unusual price movement was the result of extraordinary measures taken to have clean air for the duration of the Games. A repeat seems unlikely.

Yes, I am referring to the same plunge. The scenario is pretty similar, although the cause is slightly different. A conclusion of "a repeat is unlikely" seems too optimistic IMO.

(17-11-2014, 09:14 AM)portuser Wrote: Sunsine has added 12,000 tonnes bringing its total accelerator capacity to 87,000 tonnes by the end of this year. By then, it will provide 20% of world’s total accelerator output. As 61% of rubber is consumed by tyre companies, and as Sunisne sells almost all its accelerators to tyre makers, around 30% of tyres produced worldwide will have Sunsine’s input.

Sunsine has shared before that it would maintain gross profit margin of accelerators at a reasonable level despite its dominance in the sector.

If ASP of accelerators declines too much, other accelerator producers may suspend production and supply will reduce. Sunsine can cope better because of economies of scale, experience in waste treatment, low capital costs of the 12,000-tonne new output, and lower steam production cost.

It should also be noted that Sunsine is less reliant on accelerator sales now, with an aggregate capacity of 65,000 tonnes of anti-oxidants and insoluble sulphur against 87,000 tonnes of accelerator capacity. Its utility business in Shanxian is also set to generate decent profit selling steam to other factories.

With the current market share, the company is still a price-taker, with little control on ASP. I don't really see the company has any control on GPM, although I do agree the company did well in cost control, which is an edge over its competitors.

"Sunsine is less reliant on accelerator sales now"? I am confused by the statement. Base on latest 3Q report, accelerator sale was RMB 1.2 billion, close to 80% of total sale in 9 months. I would conclude that Sunsine is still reliant on accelerator sales now.

(not vested, but monitoring)

(17-11-2014, 09:54 AM)CityFarmer Wrote: Yes, I am referring to the same plunge. The scenario is pretty similar, although the cause is slightly different. A conclusion of "a repeat is unlikely" seems too optimistic IMO.

With the current market share, the company is still a price-taker, with little control on ASP. I don't really see the company has any control on GPM, although I do agree the company did well in cost control, which is an edge over its competitors.

"Sunsine is less reliant on accelerator sales now"? I am confused by the statement. Base on latest 3Q report, accelerator sale was RMB 1.2 billion, close to 80% of total sale in 9 months. I would conclude that Sunsine is still reliant on accelerator sales now.

(not vested, but monitoring)

In 2008, accelerators accounted for 98% of Sunsine's overall sale of RMB 798m.

In 3Q 14, this came down to 79% of overall quarterly sales of RMB 582m. Sunsine is now less reliant on accelerator sales than before.

There is scope for higher sales of anti-oxidants and insoluble sulphur because utilisation of current capacity is still low, at 72%. New 15,000-tonne 6PPD capacity is also ready for new orders following accreditations by more tyre makers.

Enforcement is stricter now, and accelerator producers must comply with pollution control requirements. Some of Sunsine's former rivals will not be around anymore, and competition will be less intense.

Chemical companies have to continually lower their unit costs to outdo others. One common strategy is capacity expansion. The recent business update that adding 12,000 tonnes of accelerators cost as little as RMB12.5m is a pleasant surprise. It vindicates company’s earlier investments that entailed heavy initial outlay but are to yield future benefits.

Amfraser’s assessment is that an expected 12% decline in accelerator ASP in 2015 will be compensated by higher sales volume.

The broking firm has also estimated net cash of RMB 160m by end of 2016 even after setting RMB 100m a year for capex. Together with around RMB 240m of notes receivables, each Sunsine share will be backed by RMB 0.85, or 17c.

17 cents will form the "base". so there is still lots of room for technical correction. tks.

(17-11-2014, 11:25 AM)portuser Wrote:

(17-11-2014, 09:54 AM)CityFarmer Wrote: Yes, I am referring to the same plunge. The scenario is pretty similar, although the cause is slightly different. A conclusion of "a repeat is unlikely" seems too optimistic IMO.

With the current market share, the company is still a price-taker, with little control on ASP. I don't really see the company has any control on GPM, although I do agree the company did well in cost control, which is an edge over its competitors.

"Sunsine is less reliant on accelerator sales now"? I am confused by the statement. Base on latest 3Q report, accelerator sale was RMB 1.2 billion, close to 80% of total sale in 9 months. I would conclude that Sunsine is still reliant on accelerator sales now.

(not vested, but monitoring)

In 2008, accelerators accounted for 98% of Sunsine's overall sale of RMB 798m.

In 3Q 14, this came down to 79% of overall quarterly sales of RMB 582m. Sunsine is now less reliant on accelerator sales than before.

There is scope for higher sales of anti-oxidants and insoluble sulphur because utilisation of current capacity is still low, at 72%. New 15,000-tonne 6PPD capacity is also ready for new orders following accreditations by more tyre makers.

Enforcement is stricter now, and accelerator producers must comply with pollution control requirements. Some of Sunsine's former rivals will not be around anymore, and competition will be less intense.

Chemical companies have to continually lower their unit costs to outdo others. One common strategy is capacity expansion. The recent business update that adding 12,000 tonnes of accelerators cost as little as RMB12.5m is a pleasant surprise. It vindicates company’s earlier investments that entailed heavy initial outlay but are to yield future benefits.

Amfraser’s assessment is that an expected 12% decline in accelerator ASP in 2015 will be compensated by higher sales volume.

The broking firm has also estimated net cash of RMB 160m by end of 2016 even after setting RMB 100m a year for capex. Together with around RMB 240m of notes receivables, each Sunsine share will be backed by RMB 0.85, or 17c.

(17-11-2014, 11:25 AM)portuser Wrote:

(17-11-2014, 09:54 AM)CityFarmer Wrote: Yes, I am referring to the same plunge. The scenario is pretty similar, although the cause is slightly different. A conclusion of "a repeat is unlikely" seems too optimistic IMO.

With the current market share, the company is still a price-taker, with little control on ASP. I don't really see the company has any control on GPM, although I do agree the company did well in cost control, which is an edge over its competitors.

"Sunsine is less reliant on accelerator sales now"? I am confused by the statement. Base on latest 3Q report, accelerator sale was RMB 1.2 billion, close to 80% of total sale in 9 months. I would conclude that Sunsine is still reliant on accelerator sales now.

(not vested, but monitoring)

In 2008, accelerators accounted for 98% of Sunsine's overall sale of RMB 798m.

In 3Q 14, this came down to 79% of overall quarterly sales of RMB 582m. Sunsine is now less reliant on accelerator sales than before.

There is scope for higher sales of anti-oxidants and insoluble sulphur because utilisation of current capacity is still low, at 72%. New 15,000-tonne 6PPD capacity is also ready for new orders following accreditations by more tyre makers.

Enforcement is stricter now, and accelerator producers must comply with pollution control requirements. Some of Sunsine's former rivals will not be around anymore, and competition will be less intense.

Chemical companies have to continually lower their unit costs to outdo others. One common strategy is capacity expansion. The recent business update that adding 12,000 tonnes of accelerators cost as little as RMB12.5m is a pleasant surprise. It vindicates company’s earlier investments that entailed heavy initial outlay but are to yield future benefits.

Amfraser’s assessment is that an expected 12% decline in accelerator ASP in 2015 will be compensated by higher sales volume.

The broking firm has also estimated net cash of RMB 160m by end of 2016 even after setting RMB 100m a year for capex. Together with around RMB 240m of notes receivables, each Sunsine share will be backed by RMB 0.85, or 17c.

Good to know the notes receivables plus the net cash alone already formed 17 cents of the share! This FY14 more or less there is no concern or issue to keep in mind. Beyond this FY, sales volume should increase albeit with lower ASP. The heating plant is also expected to save the company 30m per year plus profits in selling excess steam to other factories. EPS should hit SGD 10 cents for full FY14. If the debts get pare down, with the increased in sales plus reduced capex, FY15 and beyond could be exciting. Investors should monitor the company closely to see whether the profits can sustains in FY15 and beyond. Next to look out for is the dividend and loans level. If all signs are good, stay vested. If not, divest. It's that simple.

Technical correction seems to be far from over... Next level 40 cents...

On 21 Nov Garl wrote in Nextinsight:

“Nice price to enter now? Internet data shows aniline price has been coming down : http://graph.100ppi.com/?w=550&h=332&c=p...te=english

www.sunsirs.com/uk/prodetail-258.html

pg 7 of CIMB report says "aniline alone accounts for over 50% of the total production cost" of rubber accelerators.

brokingrfs.cimb.com/o7oE1K40Zp2WBkl-q3YK...0Su8uYc8fgBfF-k1.pdf

Like that, the falling aniline price will expand profit margin (everything else staying constant).
What's the % earnings impact, ah?”


The following are aniline ASPs (RMB/tonne) from Sunsirs:

1 Jul 14…….11,461

1 Aug 14……11,511

1 Sep 14…...11,011

Simple average in 3Q 14…………11,328

…………………

1 Oct 14….…10,689

31 Oct 14…..10,189

16 Nov 14…....9,789

21 Nov 14….…9,367

Aniline price is tumbling and this is very good for Sunsine.

The benefit of lower aniline price to rubber accelerator companies is temporary, as tyre companies expect price adjustment.

Rubber accelerators were responsible for Sunsine’s very strong RMB 83m profit in 3Q 14, which translated into a staggering 35% ROE. In comparison, profit for the whole of 2013 was RMB 77m only.

If Sunsine earns RMB 83m for each for 3 quarters and a lower RMB 50m in the first quarter (on account of Chinese New Year holidays), it will end up with a full-year profit of RMB 299m.

A much lower profit, say RMB 235m, as forecast by Amfraser, is more realistic. This profit will be equivalent to an attractive EPS of 10.5c.

The data compiled by Sfsh suggest that within a short period, price of aniline fell by 17%, from RMB 11,328 in 3Q 14 to RMB 9,367 on 21 Nov 14.

Aniline is an important raw material for making rubber accelerators. However, it may not make up 50% of accelerator production cost, as suggested by CIMB. Its weightage is more likely to be 30% (see note below).

The following are rubber accelerator price and cost data (per tonne) in 3Q 14:

ASP…….……………..RMB 22,800
Cogs ….………………RMB 15,700 (69% of ASP)
Cost of aniline……RMB 4,700 (30% of RMB 15,700)
Gross profit……....RMB 7,100

The 17% aniline price fall will result in aniline input cost being reduced by RMB 800. If accelerator ASP is cut by the same amount, gross profit will remain intact.

Sunsine is set to report a good profit even with a deeper accelerator price cut because next year, another 12,000 tonnes of accelerators and more 6PPD will be produced, and the cost-saving steam/electricity plant will start operating.

It should be noted that it cost very little to install the production lines for the 12,000 tonnes of accelerators because the supporting infrastructure was put in place earlier. The 4,000- tonne MBTS line cost RMB 3.5m, and the 8,000-tonne DCBS line RMB 9m. The potential output from these two lines has an aggregate value of at least RMB 240m on the assumption that a tonne of these products sells for a low RMB 20,000 (against RMB 22,800 ASP in 3Q 14).

This is one of Sunsine’s competitive advantages – lower unit production cost with capacity expansion.

Another advantage is research in treating wastes properly and in a cost-efficient manner. An upshot of this is the clean production process for DCBS, which is set to earn a good return on this chemical that is short in supply.

Note

Pg 87 of Sunsine’s 13 annual report states that if aniline price decreased by 10%, net profit would have been RMB 30m higher. As the RMB 30m net profit is equivalent to RMB 40m pre-tax, the amount spent on aniline in 2013 was RMB 400m, which was 30% of cogs of RMB 1,388m.

Congrats to those who hold or add during the recent correction. Traded to a high of 49cts today.

(26-11-2014, 03:12 PM)mslee888 Wrote: Congrats to those who hold or add during the recent correction. Traded to a high of 49cts today.

?still holding on.