China Sunsine Chemicals Holdings

The accelerator price in 2016 was not so good (ASP of RMB18,000 in 2016 vs RMB21,000 in 2014) but yet CCS reported a record profit of RMB 222m for 2016. What will be the outlook for 2017 with the lifting of aniline price?

Sunsine's competitor, Kemai, wanted to list on a stock exchange in late 2015.

A Beijing business article (link below) in Apr 2017 mentioned that Kemai has submitted its IPO application recently.

http://stock.stcn.com/2017/0419/13262381.shtml

The article mentioned that Kemai's Inner Mongolia's subsidiary was fined for breaching environmental requirements and was ordered to improved its production capabilities.

The article also mentioned that in June 2016, Kemai's Tianjin plant also breached safety requirements and was ordered to stop production for 35 days.

Kemai's performance between 2014 and 2016 is also on a downward trend.

With these issues, Kemai's IPO application will subject to much scrutinies by the authorities and may not be successful.

Done with reading the AR16! Immediate impression is that cashflow will increase positively as there will no longer be cash outflow to repay bank loan and loan interest. This is easily around RMB100 millions saving per year! However, not all the money will be attributed to shareholders or become retained profits, as there will be capex on expansion, among other things. Nevertheless, the 'extra' RMB100 millions per year resulting from the saving of bank loan/interest is 'recurring', if I may put it that way. In addition, rate of expansion can be controlled and the management has been doing great in this front. It is not envisage that fund will be allocated for expansion every year save for the regular yearly depreciation of plants, property, equipment etc.

From TKG's post, we also know the management has foresight to invest in environment measures to ensure clean production. This is repeating reward now and competitors have a hard time to catch up. Sunsine, on the other hand, has capitalised the situation by gaining market shares. Sunsine also seems to becoming a price setter by lowering profit margin and some competitors may find themselves unable to keep up and losing even more market shares to Sunsine.

Just some random quick thoughts after reading the AR16. I will continue to monitor the company. In particularly, whether they can continue capture bigger market shares going forward.

(23-04-2017, 11:49 AM)Bluechipfan Wrote: Done with reading the AR16! Immediate impression is that cashflow will increase positively as there will no longer be cash outflow to repay bank loan and loan interest. This is easily around RMB100 millions saving per year! However, not all the money will be attributed to shareholders or become retained profits, as there will be capex on expansion, among other things. Nevertheless, the 'extra' RMB100 millions per year resulting from the saving of bank loan/interest is 'recurring', if I may put it that way. In addition, rate of expansion can be controlled and the management has been doing great in this front. It is not envisage that fund will be allocated for expansion every year save for the regular yearly depreciation of plants, property, equipment etc.

From TKG's post, we also know the management has foresight to invest in environment measures to ensure clean production. This is repeating reward now and competitors have a hard time to catch up. Sunsine, on the other hand, has capitalised the situation by gaining market shares. Sunsine also seems to becoming a price setter by lowering profit margin and some competitors may find themselves unable to keep up and losing even more market shares to Sunsine.

Just some random quick thoughts after reading the AR16. I will continue to monitor the company. In particularly, whether they can continue capture bigger market shares going forward.

I am yet to read the AR. General comments here.

There are expansion CAPEX as well as replacing CAPEX. Replacing CAPEX for manufacturing is significant generally, especially for the chemical products.

Becoming a price setter by lowering profit margin? Probably you mean able to price out competitors with its lower cost base.

(23-04-2017, 09:04 PM)YMPL Wrote:

(23-04-2017, 11:49 AM)Bluechipfan Wrote: Done with reading the AR16! Immediate impression is that cashflow will increase positively as there will no longer be cash outflow to repay bank loan and loan interest. This is easily around RMB100 millions saving per year! However, not all the money will be attributed to shareholders or become retained profits, as there will be capex on expansion, among other things. Nevertheless, the 'extra' RMB100 millions per year resulting from the saving of bank loan/interest is 'recurring', if I may put it that way. In addition, rate of expansion can be controlled and the management has been doing great in this front. It is not envisage that fund will be allocated for expansion every year save for the regular yearly depreciation of plants, property, equipment etc.

From TKG's post, we also know the management has foresight to invest in environment measures to ensure clean production. This is repeating reward now and competitors have a hard time to catch up. Sunsine, on the other hand, has capitalised the situation by gaining market shares. Sunsine also seems to becoming a price setter by lowering profit margin and some competitors may find themselves unable to keep up and losing even more market shares to Sunsine.

Just some random quick thoughts after reading the AR16. I will continue to monitor the company. In particularly, whether they can continue capture bigger market shares going forward.

I am yet to read the AR. General comments here.

There are expansion CAPEX as well as replacing CAPEX. Replacing CAPEX for manufacturing is significant generally, especially for the chemical products.

Becoming a price setter by lowering profit margin? Probably you mean able to price out competitors with its lower cost base.

Yearly capex replacement as the name suggests, is a yearly event. The amount is also well documented and that's not the factor I am interested in. The new development, i.e., no more bank loan, is what interest me as this could be a positive factor for potential higher earning. However, I need to point out that fund is also required for expansion capex but taken as a whole, my view is that overall it is still positive. Whether the expansion capex is higher or lower than the replacement capex is not in the equation. Also, if Sunsine can set the price lower to price out competition, then in a broader sense, they should be regarded as a price setter.

(23-04-2017, 09:52 PM)Bluechipfan Wrote: Also, if Sunsine can set the price lower to price out competition, then in a broader sense, they should be regarded as a price setter.

In the same vein, MyRepublic is the market "price setter" by lowering profit margin to capture the local broadband market share. TPG, the incoming fourth mobile operator, is the market "price setter" with a strategy of lower price against its competitors to capture market share.

This is not my understanding of "price setter", and probably the rest in VB

Lol one thing I find buddies in VB can be quite rigid and obsess with technical definition. You could be right and in academy setting you probably will score an A. However I am more interested in the tangible. Ok I shall not term Sunsine as price setter but without doubt they can set the price lower to capture bigger market shares and thus, more profit albeit on lower margin. Let's not forget they also raised their price in 2014 due to favourable confluence of market conditions.

(24-04-2017, 09:49 AM)Bluechipfan Wrote: Lol one thing I find buddies in VB can be quite rigid and obsess with technical definition. You could be right and in academy setting you probably will score an A. However I am more interested in the tangible. Ok I shall not term Sunsine as price setter but without doubt they can set the price lower to capture bigger market shares and thus, more profit albeit on lower margin. Let's not forget they also raised their price in 2014 due to favourable confluence of market conditions.

Lol, yes, my apologies. Why should I bother on your interpretation? 

This bit of history may help.

Before enforcement against industrial pollution was stepped up in China in 2014, the rubber accelerator industry was experiencing overcapacity. Back then many rubber accelerator producers made a profit without spending on waste treatment. 

In its 4Q 2011 results announcement, Sunsine revealed 'deliberate price reductions' that led to 4Q 11 domestic sales being 24% higher than 4Q 10. 

The drastice price reductions resulted in lower profit of RMB 32m in 2012. But as sales volume grew, profit rose to RMB 77m in 2013. When stricter enforcement progressively eliminated rubber accelerator supply from sub-par producers, profit surged to RMB 220m in 2014 on higher product prices as well as sales vol:

Rubber accelerators
...............................................................2011......2012...,..2013.......2014.......2015.......2016
Average selling price (RMB/tonne).....20,700...18,600...18,600....21,200....18,500....17,800
Sales vol (tonnes)...............................50,100...64,300...72,700....76,100....76,100....82,800

Sunsine's overall gross margin............25.0%....17.2%....18.2%.....27.3%.....26.5%....26.5%
Sunsine profit (RMB m).............................99..........32..........77.........220.........195.........222

It should be noted that as rubber accelerator prices are pegged to aniline price, cheaper aniline in 2015 and 2016 (resulting from plunging crude oil price) led to lower rubber accelerator prices:





Despite weaker rubber accelerator prices, profits in 2015 and 2016 were not far off 2014's RMB 220m. 

Lately, stronger aniline price (tracking firmer crude price) has lifed average rubber accelerator price:

3Q 15.......19,000
4Q 15.......18,100
1Q 16...... 17,300
2Q 16 ......17,200
3Q 16.......17,600
4Q 16.......18,900
 

(24-04-2017, 09:49 AM)Bluechipfan Wrote: Lol one thing I find buddies in VB can be quite rigid and obsess with technical definition. You could be right and in academy setting you probably will score an A. However I am more interested in the tangible. Ok I shall not term Sunsine as price setter but without doubt they can set the price lower to capture bigger market shares and thus, more profit albeit on lower margin. Let's not forget they also raised their price in 2014 due to favourable confluence of market conditions.

hi Bluechipfan,
There are all sorts of VBs on this forum - from the very experienced fund manager to the newly minted brokerage account holder. As all of us are behind a keyboard, it is imperative for numbers and definitions to be as clear as they can be. To make VB forum viable, each of us owe it to the other to do something like that.

If you are deliberately not following the conventional definition, then please put "XXX" to indicate that. While i am not economically trained, my impression of price setter is someone who is the leader in a monopolistic market and has the ability to set prices (up or down) and then competitors follow. Maybe in your context, it would be better to term it as "price lower-er"?