China Sunsine Chemicals Holdings

(18-01-2014, 09:06 PM)CityFarmer Wrote:

(18-01-2014, 12:37 AM)portuser Wrote: Just to clarify.
RMB195m is not the FCF in 2014.
It is the sum of RMB120m profit (based on estimated Q4 2013 profit of RMB30m) and non-cash expense of RMB75m (based on RMB18.8m for Q3 2013).
RMB195m is an approximate amount of cash available for capex, working capitals and dividend in 2014.
No assumption has been made on the amount of cash generated from the new steam generation business.

Noted and understood. OCF and FCF seem are good terminologies used in the context of our discussion. What do you think?

Yes, free operating cash flows "measure" the amount of cash left over after everything and is an important indicator.
In estimating how Sunsine might have fared in 2014, I chose profit + non-cash expenses (=depreciation + amortisation) because the amount of capex and the changes in working capital in that year are additional unknowns. In Sunsine’s case, in the first nine months of 2013, operating cash flows of RMB107m differed from profit + non-cash expenses by RMB7m.
Since securing around RMB220m from the IPO in 2007, there has been no further fund raising despite heavy spending on PPE (RMB545m since 2008), buyback of 26m shares (for RMB28m), and trade receivables surging from RMB101m at the end of 2007 to RMB508m by 3Q 2013.
Spending on PPE is for capacity building. Some of the investment money has yet to bear fruit because the projects were sized for future demands. An obvious example is the 30,000-tonne 6PPD factory – it is now producing several thousand tonnes at best and must be running at a loss, while awaiting accreditations of the newly-introduced product. Another example is the 19-hectare new base at Weifang – with an installed capacity of 14,000 tonnes now compared with the 38-hectare Shanxian base that can house 102,500 tonnes.
Borrowings entail financial risks. Sunsine’s current gearing ratio of around 25% is modest, and can go a bit higher without causing concerns.
It should be noted that Sunsine manages its trade receivables prudently. New customers are required to produce bankers' guanrantees for their purchases. Of the RMB403m trade receivables at as 31 Dec 2012, RMB149m were backed by banks. Moreover, Sunsine pays its suppliers promptly to secure better prices (this partly explains why the company holds large amount of cash, in excess of RMB100m) -- trade payables stood at RMB60m only for 9-month sales of RMB1,251m up to 30 Sep 2013.

(18-01-2014, 09:16 PM)CityFarmer Wrote:

(18-01-2014, 01:55 PM)simpleman Wrote: If its 4Q profit was RMB30m (slightly higher than the RMB27m in 3Q), and this is sustained, Sunsine's 2014 profit will be RMB120m.
This works out to an EPS of S5.3c, and the PE will be 5 only.
Even though this is a S-chip, the facts that it is serving tyre majors and has been paying a S1c dividend regularly should provide a great deal of comfort.


Simpleman

What if the dividend payouts in the last four years were from retained earning, rather than from its profit?

The cash reserve has been reduced from the peak of RMB 184m in 2008, to RMB 72m in the last FY2012. Each year the dividend payout was approx RMB 20m-25m, except on 2009 which was close to RMB 45m.

(not vested)

Sunsine's profit exceeds dividend payment all these years. In the worst year of 2012, profit of RMB32m was more than the RMB23m dividend payment. In fact, dividend payment in that year would not have caused hardship with huge depreciation of RMB63m.

Simpleman

Just had another look at China Sunsine's 3Q result announcements…..
http://infopub.sgx.com/FileOpen/CS_3Q201...eID=264120 [3Q result announcement]
http://infopub.sgx.com/FileOpen/CS_3Q201...eID=264121 [press release]

It looks like the business is poised to record quite a significant increase in both revenue and profits in FY13 when the full-year result is released next month. I am looking forward for just that and the usual $0.01/share Final dividend payment expected in May2014.

Let's me continue to be the devil's advocate.

The company 9 months' FCF was about RMB 50m, a simple projection gives RMB 67m as full year estimation of FCF.

Base on the last two announcements of diversification. The hotel investment and management subsidiary's paid-up capital is RMB 20m.
Ref: http://infopub.sgx.com/FileOpen/Establis...eID=268000
and the Steam power production and supply's subsidiary's paid-up capital is RMB 10m
Ref: http://infopub.sgx.com/FileOpen/Incorp_S...eID=269268

Base on the last disclosure of debt. The company debt increased to RMB 275m, from RMB 205m in Q3 report.
Ref: http://infopub.sgx.com/FileOpen/CS_Rule_...eID=266619

(19-01-2014, 10:44 PM)CityFarmer Wrote: Let's me continue to be the devil's advocate.

The company 9 months' FCF was about RMB 50m, a simple projection gives RMB 67m as full year estimation of FCF.

Base on the last two announcements of diversification. The hotel investment and management subsidiary's paid-up capital is RMB 20m.
Ref: http://infopub.sgx.com/FileOpen/Establis...eID=268000
and the Steam power production and supply's subsidiary's paid-up capital is RMB 10m
Ref: http://infopub.sgx.com/FileOpen/Incorp_S...eID=269268

Base on the last disclosure of debt. The company debt increased to RMB 275m, from RMB 205m in Q3 report.
Ref: http://infopub.sgx.com/FileOpen/CS_Rule_...eID=266619

Thank you for pointing out that bank borrowings now reach RMB270m (from RMB205m as at end of 3Q 2013).
A strong 4Q 2013 profit of say RMB30m will set the stage for high profit in the current year. Together with the high non-cash expenses, borrowings may be capped at some point.
After raising RMB264m from IPO in 2007 (the figure of RMB220m in my earlier post is incorrect), Sunsine has shunned fund raising and relied on borrowings.
Borrowings could have been lower if it relies on suppliers’ credits, but the company chooses to pay promptly. The table below shows the amounts owed to supplier at various points of time:
End of…………RMB m
3Q 2013…..……69.4
2Q 2013………..58.7
1Q 2013………..58.9
2012……………..46.5
2011……………..45.5
According to the IPO prospectus, raw materials make up 82.8% of cogs. Therefore, of the cogs of RMB 1,173m in 2012, RMB970m was for payments to suppliers, or RMB2.66 per day. The unpaid amount of RMB46.5m suggests that the company took 18 days, on average, to pay.
An average duration of 2 months for suppliers’ credits would mean Sunsine can withhold RMB107m, if it takes advantage of paying 42 days later.
Borrowings for capacity building and the associated working capitals to earn a return in excess of loan rate is not necessarily bad. The concern should be whether the borrowings create financial risk.
Rubber accelerators are basic materials for the tyre industry, and impairment of trade receivables has been negligible (less than RMB1million for sales exceeding RMB1b). Moreover, the banker guarantees (amounting to RMB149m at end of 2012) provide a good line of defence -- they can be en-cashed, with some penalty, for unanticipated need of cash.

(20-01-2014, 01:08 PM)portuser Wrote: Thank you for pointing out that bank borrowings now reach RMB270m (from RMB205m as at end of 3Q 2013).
A strong 4Q 2013 profit of say RMB30m will set the stage for high profit in the current year. Together with the high non-cash expenses, borrowings may be capped at some point.
After raising RMB264m from IPO in 2007 (the figure of RMB220m in my earlier post is incorrect), Sunsine has shunned fund raising and relied on borrowings.
Borrowings could have been lower if it relies on suppliers’ credits, but the company chooses to pay promptly. The table below shows the amounts owed to supplier at various points of time:
End of…………RMB m
3Q 2013…..……69.4
2Q 2013………..58.7
1Q 2013………..58.9
2012……………..46.5
2011……………..45.5
According to the IPO prospectus, raw materials make up 82.8% of cogs. Therefore, of the cogs of RMB 1,173m in 2012, RMB970m was for payments to suppliers, or RMB2.66 per day. The unpaid amount of RMB46.5m suggests that the company took 18 days, on average, to pay.
An average duration of 2 months for suppliers’ credits would mean Sunsine can withhold RMB107m, if it takes advantage of paying 42 days later.
Borrowings for capacity building and the associated working capitals to earn a return in excess of loan rate is not necessarily bad. The concern should be whether the borrowings create financial risk.
Rubber accelerators are basic materials for the tyre industry, and impairment of trade receivables has been negligible (less than RMB1million for sales exceeding RMB1b). Moreover, the banker guarantees (amounting to RMB149m at end of 2012) provide a good line of defence -- they can be en-cashed, with some penalty, for unanticipated need of cash.

In page 05 of AR 2012, the YTD payable turnover days were between 15-20 days for the past four years. That was one "plus" point on the company cash flow.

The short payable credit term, might be a norm in the industrial. It might be a dangerous assumption on "extraction of cash" from longer credit term.

What is this banker's guarantee? How does it work? Can you en-cash a banker's guarantee? Thanks.

(20-01-2014, 01:08 PM)portuser Wrote:

(19-01-2014, 10:44 PM)CityFarmer Wrote: Let's me continue to be the devil's advocate.

The company 9 months' FCF was about RMB 50m, a simple projection gives RMB 67m as full year estimation of FCF.

Base on the last two announcements of diversification. The hotel investment and management subsidiary's paid-up capital is RMB 20m.
Ref: http://infopub.sgx.com/FileOpen/Establis...eID=268000
and the Steam power production and supply's subsidiary's paid-up capital is RMB 10m
Ref: http://infopub.sgx.com/FileOpen/Incorp_S...eID=269268

Base on the last disclosure of debt. The company debt increased to RMB 275m, from RMB 205m in Q3 report.
Ref: http://infopub.sgx.com/FileOpen/CS_Rule_...eID=266619

Thank you for pointing out that bank borrowings now reach RMB270m (from RMB205m as at end of 3Q 2013).
A strong 4Q 2013 profit of say RMB30m will set the stage for high profit in the current year. Together with the high non-cash expenses, borrowings may be capped at some point.
After raising RMB264m from IPO in 2007 (the figure of RMB220m in my earlier post is incorrect), Sunsine has shunned fund raising and relied on borrowings.
Borrowings could have been lower if it relies on suppliers’ credits, but the company chooses to pay promptly. The table below shows the amounts owed to supplier at various points of time:
End of…………RMB m
3Q 2013…..……69.4
2Q 2013………..58.7
1Q 2013………..58.9
2012……………..46.5
2011……………..45.5
According to the IPO prospectus, raw materials make up 82.8% of cogs. Therefore, of the cogs of RMB 1,173m in 2012, RMB970m was for payments to suppliers, or RMB2.66 per day. The unpaid amount of RMB46.5m suggests that the company took 18 days, on average, to pay.
An average duration of 2 months for suppliers’ credits would mean Sunsine can withhold RMB107m, if it takes advantage of paying 42 days later.
Borrowings for capacity building and the associated working capitals to earn a return in excess of loan rate is not necessarily bad. The concern should be whether the borrowings create financial risk.
Rubber accelerators are basic materials for the tyre industry, and impairment of trade receivables has been negligible (less than RMB1million for sales exceeding RMB1b). Moreover, the banker guarantees (amounting to RMB149m at end of 2012) provide a good line of defence -- they can be en-cashed, with some penalty, for unanticipated need of cash.

(20-01-2014, 03:14 PM)Sfsh12 Wrote: What is this banker's guarantee? How does it work? Can you en-cash a banker's guarantee? Thanks.

In Sunsine’s annual report for 2011, bankers’ guarantees are termed “notes receivables” which are non-interest bearing and have a maturity period from 1 to 180 days.
In its 1Q 2013 results announcement, the company explains that notes receivables provided by trade debtors which are promissory notes issued by the local banks. Consequently, the risks of non-recoverability of these notes receivables by local banks are significantly lower than those amounts owing by trade debtors.
If a note is held to maturity, Sunsine will receive the full amount from the bank. If it is presented earlier, a discount proportional to the unexpired period will apply.
Notes receivables are therefore near-cash as they can be converted into cash readily, and may be taken into account in assessing the financial strength of the company. For example, as end of 1Q 2013, the default risk of the RMB200m bank loans can be considered as low because cash (RMB107m), available-for-sale financial assets (RMB10m) and notes receivables(RMB187m) added up to RMB304m.

(20-01-2014, 03:07 PM)CityFarmer Wrote: In page 05 of AR 2012, the YTD payable turnover days were between 15-20 days for the past four years. That was one "plus" point on the company cash flow.

The short payable credit term, might be a norm in the industrial. It might be a dangerous assumption on "extraction of cash" from longer credit term.

Aniline, a basic chemical, is the main raw material for the manufacture of rubber chemicals. The aniline industry is competitive and subject to boom-and-bust cycle. Producers are in no position to dictate payment terms.
Small rubber chemical producers generally have to collect from customers before paying suppliers.
Besides enjoying lower raw material prices, Sunsine endears itself to suppliers with prompt payments. When supply is tight, Sunsine can still get the required amounts of raw materials.
Sunsine therefore has no reason to pay later. The company must have balanced the cost of holding cash (either from internal funds or loans) for prompt payments against the benefits of lower prices and priority accorded by its suppliers. This arrangement has not introduced stress as Sunsine has not been boosting sales indiscriminately, for orders by new customers are backed by bank-issued security.

no matter what is said here, sunsine's rally is losing steam ahead of its results announcement....