China Sunsine Chemicals Holdings

[Bluechipfan]

Bluechipfan,

You mentioned "YZJF is the second S-chip that I invested heavily. First one was China Sunsine [CS] which I still have 100k shares at the average cost of 27 cents post split. I have held 500k shares of CS at one point before gradually exit most of it just prior to the announcement of split."

Pardon me for the seemingly unrelated information above, but I find it kind of relevant because as with CS, YZJF is also simply viewed negatively by some quarters with the label of S-chip. Some people just don't trust S-chip but I hope YZJF can turn out to be another CS for me.

UOBKayhian has set 45.3c as the target price of Sunsine shares. As the broking firm has projected a cash balance of RMB 2,220m (without bank borrowings) as of the end of this year, translating into 45c per share, does it mean the rubber chemical business is worthless, or the cash is fake? Grateful for your view.

The analyst report can be found at https://www.chinasunsine.com/investors/a...-coverage/

First of all, it has been a while since I am here and I wish everyone a very huat rabbit year going forward. YZJF is the second S-chip that I invested heavily. First one was China Sunsine [CS] which I still have 100k shares at the average cost of 27 cents post split. I have held 500k shares of CS at one point before gradually exit most of it just prior to the announcement of split.

Pardon me for the seemingly unrelated information above, but I find it kind of relevant because as with CS, YZJF is also simply viewed negatively by some quarters with the label of S-chip. Some people just don't trust S-chip but I hope YZJF can turn out to be another CS for me. It wasn't easy investing in S-chip because the negative opinions/views on S-chip can be overwhelming at times. It's hard to ignore them and sometimes it make people, who are vested in S-chip, started to have self doubts. I still remember some comments on CS such as 'it's high risk, the factory could be on fire' or something to that effect.

For YZJF, what attracted me to it was the historical high profits and generous dividend payout pre split [YZJS]. Once the management undertake the dividend policy of at 40% payout NPAT, the only question I have to ask is how likely the profits will continue and sustain post split as YZJF. After seeing their management recruitment and insiders buying post split, I decided to build my position in YZJF. If Ren and the management can build YZJS from scratch in the past, Ren with his management can now also build up YZJF. This is track records. They just need time and I figure that while waiting, the risk can be mitigated with the dividends and the relatively low cost of purchases due to the suppressed share price. My average cost is now about 38 cents and I reckon that if the dividend is between 1.5-2 cents per year, not only it will bring down my 'average cost' correspondingly, the share price will bound to surpass 40 cents too and/or even more within 2 years. I think the cost and the risk is commensurate in this case and 2-3 years is reasonable timeframe to have a even clearer picture one way or another.

Of course Sunsine's cash is real. No disruption of dividend payout since IPO, no cash call at all and had conducted SBB from time to time. I am not sure why UOBKaykian gives such low TP despite Sunsine's increasing cash in hands. Perhaps the market simply think this is S-chip and it is also not a very big company. Just look at the PE, for a company that constantly achieve EPS of sgd 10 cents in most years, the PE hardly cross over 5x. 

I have been holding the view that the only way for Sunsine's share price to go up, is that they increase their dividend payout ratio. Other than the one time 20% payout few years back, the payout ratio has been around 10% or even lower. With no debt, I don't see why can't they pay at least 50% of EPS. Maybe it is due to capex considerations and having said that, their capex should be slowing down from now on and who know, one day they will start paying at least 4 cents dividend. That will be around 40% of EPS and should move the share price up to at least 80 cents.