China Sunsine Chemicals Holdings

[Young Investor]

Part of Sunsine assets are investments (such as the new bases in Weifang and Dingtao) for future growths. The fixed cost of Weifang is high as only 14,000 tonnes of accelerators are being produced now against a possible 40,000 tones. The same goes for 6PPD. As productions step up, ROE as well as ROA (if it is the best measure of profitability) should be higher than now. Demand for rubber chemicals, which are basic materials for the rubber industry, should rise. Sunsine’s strategy for gaining market share seems to have worked so far.

Portuser,
Can you share what are your estimates of the fixed costs of Weifang and 6PPD?

Thank you.

[portuser]

Long-term investment is typically implemented in phases, with infrastructure for the full-scale operations constructed at the outset so as not to cause disruptions subsequently.

The 6PPD venture illustrates how badly high initial capital outlay affects unit production cost.

The project, costing RMB 200m for 30,000 tonnes of 6PPD, was to be executed in two phases, giving rise to an ultimate unit capex of RMB 6,700, or an ultimate unit depreciation of RMB 440 (if assets are written down over 15 years on average).

The first phase was for the infrastructure and a 15,000 tonne production line for a sum of up to RMB 120m. Production facilities for the other 15,000 tonne of 6PPD and 18,000 tonnes (?) of 4ADPA (the intermediary to make 6PPD) were to be installed later for RMB 80m.

When it failed to procure 4ADPA from existing 6PPD producers, the 4ADPA production line was installed ahead of schedule.

If the 4ADPA line cost RMB 20m, initial capex of the first 15,000 tonnes of 6PPD would have been RMB 140m. Unit depreciation became RMB 620.

But matters were made worse when sales of 6PPD were slow in picking up. The 5,000 tonne sold in 2013 gave rise to a unit depreciation of RMB 1,870, many times of the intermediate RMB 620 and the ultimate RMB 440.

Besides higher unit depreciation, other fixed running costs (such as admin support, security) are incurred whatever the production vol is.

The other two new ventures at Weifang and Dingtao incur high initial capital outlay too, for RMB 100m each.

[simpleman]

But matters were made worse when sales of 6PPD were slow in picking up. The 5,000 tonne sold in 2013 gave rise to a unit depreciation of RMB 1,870, many times of the intermediate RMB 620 and the ultimate RMB 440.



Just back to Singapore.

No doubt there has been progress in selling 6PPD. But why is it taking so long? If 5,000 tonnes of 6PPD were sold in 2013, utlisation was only 33%?

Simpleman

[portuser]

Page 98 of Sunsine IPO prospectus (3 Jul 2007) explains how stringently renowned tyre companies select their suppliers:

"Generally, prior to being selected as the supplier to the renowned tyre manufacturers, we are required to undergo a stringent supplier selection test set by them. The stringent selection process takes into account factors such as production capability and capacity as well as quality of products and services. The supplier selection process typically takes between six months to two years before we are qualified as their supplier.”

Selected supplier cannot expect instant full orders. Initial orders are for small quantities for tyre makers to further assess his reliability.

After being in the market for many years, Sunsine's accelerators are established by now and utilisation is high despite regular capacity addition.

Newly-introduced rubber chemicals are subject scrutiny.

Insoluble sulphur took four years (after completion of production facility in 2007) to reach a satisfactory utilisation of around 79% in 2011, to be followed by full utilisation in the two subsequent years:

..…………………………..………………………..2007….2008….2009…...2010…..2011..…..2012..…...2013
Capacity (year end) (tonnes)……….5,000…5,000…8,000…10,000…10,000...10,000..…10,000
Sales vol (tonnes)…………….………………………….464…3,468.….4,413....7,873….10,724....11,948

Production of its new 10,000-tonne insoluble factory is to start sooon and Sunsine is confident of demand.

6PPD, still new, may take a while to be of significance.

[CityFarmer]

The company increased its credit line to RMB 250 mil, where RMB 230 mil already used.

Ref: http://infopub.sgx.com/FileOpen/CS_Discl...eID=289033

[portuser]

Bank loans fluctuated:


......................Loan limit (RMB m) on.....Drawdown (RMB m) on

3 Dec 2013..............275.........................................275

31 Dec 2013.............n.a.........................................230

12 Mar 2014.............230........................................210

18 Mar 2013.............250........................................230

RMB 90m was spent on PPE in the last quarter of 2013, presumably to complete the new insoluble sulphur factory and to start the construction of heating plant (to be completed in 3Q 2014).

If Sunsine did not borrow more in 1Q 2014, does it mean cash flows in that quarter were sufficient for PPE and working capitals for the insoluble sulphur factory?

[CityFarmer]

Latest update on the company debt. Debt facility of RMB 280 mil, and RMB 260 mil already used.

http://infopub.sgx.com/FileOpen/CS_Discl...eID=288309

[BlueKelah]

Not vested in this company but from the debt increases it looks like something not so good is going on. This is not even a property company and so much debt.

From what I know, chemical companies should be initial high capex, after that will be constant production and profits only affected by the chemical sale price or the raw material price.

6% interest for the debt doesn't sounds very sustainable to me, better to do rights or bond issue to raise money for expansion if really needed.

Have to add a warning for newbies -> this is S-Chip. You dont have to get burned to learn that it will burn you.

[cfa]

Just avoid this company , there are many better places to park your monies.

[Curiousparty]

Good for SGX to query why share price spiked to 30 cents and only to crash all the way back to 23 cents ...

What is SGX criteria to single out counters to query ?