China Sunsine Chemicals Holdings

[Sfsh12]

The importance of self sufficiency in MBT production under current circumstances is highlighted in the attached analyst report (from 安信证券) on Yangguhuatai (阳谷华泰).

According to their research, MBT industry wide capacity is about 400K tons, and MBT is the key feedstock for about 80% of all rubber accelerator types. More than 100K tons of capacity has been suspended or shut down (about 1/3 of industry capacity). Also, 80% of China's MBT capacity is concentrated in the North of China and with the coming APEC meeting in Beijing at the end of November, environmental enforcement actions are likely to intensify, leading to further shortage in supply of MBT.

(extracted from page 2)
据我们行业草根及公司调研了解到，促进剂M 整体行业的有效产能约在40 万吨左右，同时促进剂M 是整个橡胶促进剂类别中最关键的原料，约有80%以上品种需以其作为原料。此次已确认关停的企业产能已经超过10 万吨，约占全行业的1/3。同时由于促进剂M 全国80%的产能集中在华北地区，在环保要求趋严的背景下我们预计年底北京APEC会议将加剧京津冀地区的环保整顿力度，因此供给端的冲击仍将继续和深入

MBT is the main feedstock for the production of CBS and NS (MBT based rubber accelerator). To produce one ton of CBS or NS, 0.75 tons of MBT is needed, thus the availability of MBT decides the production level of CBS and NS. Previously, before Yangguhuatai had installed their own MBT capacity, their capacity utilisation rate for NS was affected as they were not able to purchase sufficient MBT from the market.

(extracted from page 9)
促进剂M 是次磺酰胺类促进剂CZ（CBS）和NS 的主要原材料，单耗大致为0.75 左右，因此M 决定了两者的产量（阳谷华泰历史上就曾因为无法从市场上采购到足够的M 而影响促进剂NS 的开工率）。

The report also states that Yangguhuatai now has installed MBT capacity of 15K tons, while total combined capacity of NS and CBS is 30K tons. It would appear that Yangguhuatai is not self sufficient yet for its MBT supply and would not be able to achieve full utilisation for its combined NS and CBS capacity.

Looking at China Sunsine, its MBT capacity is currently 45K tons, theoretically able to support the production of 60K tons of MBT based rubber accelerators. China Sunsine does not disclose the breakdown of its total 75K tons accelerator capacity but it should be safe to say that China Sunsine is in a good position in terms of its MBT supply under current circumstances.

It follows that it is an interesting question to ask how is it that China Sunsine has over the years managed to build up its MBT supply such that it is in a good position under current circumstances?

[CityFarmer]

It follows that it is an interesting question to ask how is it that China Sunsine has over the years managed to build up its MBT supply such that it is in a good position under current circumstances?

One merit of the company, which make it interesting, is the production expansion planning and execution. A well-planned and well-executed production expansion

(not vested)

[Curiousparty]

How does this current shortage of MBT gel with the "excess capacity" cited by company in its previous annual report?

Fundamentally, is sunsine still facing excess capacity issue in the sector it is operating in?
How hard is govt clamping down on the rate of vehicle increase?

The above analysis is good on hindsight.

[simpleman]

How does this current shortage of MBT gel with the "excess capacity" cited by company in its previous annual report?

Fundamentally, is sunsine still facing excess capacity issue in the sector it is operating in?
How hard is govt clamping down on the rate of vehicle increase?

The above analysis is good on hindsight.

Curiousparty
You are questioning whether accelerators are really short in supply.
Are you serious?

On 29 May 14, you wrote on Puntergallery:
This is really one of the few best S-chips we have seen so far.

No rights issues, dividend every year since day 1, share buy back, etc.

Given their foresight of advanced investment in green and environmentally friendly pollution control technologies, they are now going to reap the handsome rewards.

Based on the 1Q2014 announcement by Sunsine, many of its competitors had already suspended their operations due to Government action on environmental protection, resulting in a decrease in supply of rubber accelerators. Sunsine will then switch back to increase the price of their products.

Although very capital intensive, sunsine is helped by having a much greater EOS (economy of scale) compared to the other much smaller players. Hence, sunsine has a much lower cost structure and it can afford to play down the prices for the last few years to drive out and suffocate its competitors.

It is a virtuous cost cycle for sunsine. As more companies die out, EOS will get higher and cost structure (per unit volume) will be further lowered.

If everything pans out, sunsine share price should hit a new high over the next few quarters (probably in the region of 35 to 40 cents).

Few days later, on 4 Jun 14, you wrote again:
Now is a good time to accumulate more when everyone is fearful!

"As the China government is placing more emphasis on environmental protection, some medium- and small-sized players in the rubber chemicals industry were forced to suspend their production. Further, due to the China government’s comprehensive measures on environmental protection, a few large-sized players also suspended their production.

"As such, the supply of accelerators in the market is decreasing. In order to maintain their productions to meet higher demand of tires, the tire makers placed more orders to purchase accelerators. The Group anticipates that the sales volume of accelerator products will continue to increase.

[Curiousparty]

I am not questioning that the MBT is in short supply in the short term .
I was referring to the RUBBER chemical industry in general.

Pls read carefully.

The following is extracted from 2Q financial results:-

"The global economy appears to be recovering, albeit unevenly.
Locally, the rubber chemicals industry
in China continues to face overcapacity problem generally. Moving forward, the rubber chemicals
industry is expected to undergo a re-structuring process, where some smaller players may exit the
industry and the industry may see some consolidation, which may benefit our Group. On the whole,
barring unforeseen circumstances, the Group expects to achieve new record profits for this year."


The fact remains that there is still excess capacity in the rubber chemicals industry.
Competition will continue to be very fierce. If Sunsine emerge victoriously, it would be good.

Good if someone can help to list out all the biggest competitors of Sunsine,so that we can see what strategies are they adopting against Sunsine...

All in all, I am cautiously optimistic of Sunsine for now

How does this current shortage of MBT gel with the "excess capacity" cited by company in its previous annual report?

Fundamentally, is sunsine still facing excess capacity issue in the sector it is operating in?
How hard is govt clamping down on the rate of vehicle increase?

The above analysis is good on hindsight.

Curiousparty
You are questioning whether accelerators are really short in supply.
Are you serious?

[simpleman]

I am not questioning that the MBT is in short supply in the short term .
I was referring to the RUBBER chemical industry in general.

Pls read carefully.

The following is extracted from 2Q financial results:-

"The global economy appears to be recovering, albeit unevenly.
Locally, the rubber chemicals industry
in China continues to face overcapacity problem generally. Moving forward, the rubber chemicals
industry is expected to undergo a re-structuring process, where some smaller players may exit the
industry and the industry may see some consolidation, which may benefit our Group. On the whole,
barring unforeseen circumstances, the Group expects to achieve new record profits for this year."


The fact remains that there is still excess capacity in the rubber chemicals industry.
Competition will continue to be very fierce. If Sunsine emerge victoriously, it would be good.

Good if someone can help to list out all the biggest competitors of Sunsine,so that we can see what strategies are they adopting against Sunsine...

All in all, I am cautiously optimistic of Sunsine for now

Curiosparty

I attended the results briefing. Management explained that accelerator sector is facing shortage as some accelerator companies cannot buy enough MBT. Prices of accelerators have therefore risen sharply.

The other two sectors of the rubber chemical industry, insoluble sulphur and anti-oxidants, are facing over capacity. Pl note the following in the same 2Q announcement you referred to:

“……Insoluble Sulphur will continue to face intense competition.”

Accelerators accounted for close to 80% of 2Q revenue and the bulk of profit. The problems faced by insoluble sulphur and anti-oxidants are not a major concern now. The company is in a strong financial position to grow sales of these chemicals.

You should attend briefing with such strong interest in Sunsine.

I find it hard to gel your statement

"All in all, I am cautiously optimistic of Sunsine for now "

with your recent Eratat post #584

"Hence, I hope value buddies will understand why I become very apprehensive of S-chips in general (e.g. sunsine, sino grandness, china essence, etc) once I sense that management might be up to some tricks in their sleeves, etc

especially when the company has a bumper year and company still did not want to buy back any shares to boost investor's confidence..."

[Curiousparty]

Short term wise, I am cautiously optimistic.
Long term wise, I have no idea and the "usual due diligence" should apply when investing in any S-chip company in general.

Since u attended the AGM, cld u share how is their "hotel resort business" coming along?
And also how are Sunsine's competitors gearing up? (e.g. are they consolidating for even greater economies of scale, etc)

When the supply constraint in MBT eases, is the company reverting back to the "Low Price Strategy" again to cut out their competitors?

tks.

*****
"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

"We have to deal in things we’re capable of understanding, and then, once we’re over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage , and then, of course, we would vastly prefer a management in place with a lot of integrity and talent , and then, finally, no matter how wonderful it is it’s not worth an infinite price so we have to have a price that makes sense and gives a margin of safety given the natural vicissitudes of life."

(Warren Buffett)

I find it hard to gel your statement

"All in all, I am cautiously optimistic of Sunsine for now "

with your recent Eratat post #584

"Hence, I hope value buddies will understand why I become very apprehensive of S-chips in general (e.g. sunsine, sino grandness, china essence, etc) once I sense that management might be up to some tricks in their sleeves, etc

especially when the company has a bumper year and company still did not want to buy back any shares to boost investor's confidence..."

[simpleman]

[quote='Curiousparty' pid='93795' dateline='1410142686']
Short term wise, I am cautiously optimistic.
Long term wise, I have no idea and the "usual due diligence" should apply when investing in any S-chip company in general.

Since u attended the AGM, cld u share how is their "hotel resort business" coming along?
And also how are Sunsine's competitors gearing up? (e.g. are they consolidating for even greater economies of scale, etc)

When the supply constraint in MBT eases, is the company reverting back to the "Low Price Strategy" again to cut out their competitors?

tks.

*****
"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

"We have to deal in things we’re capable of understanding, and then, once we’re over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage , and then, of course, we would vastly prefer a management in place with a lot of integrity and talent , and then, finally, no matter how wonderful it is it’s not worth an infinite price so we have to have a price that makes sense and gives a margin of safety given the natural vicissitudes of life."

(WB)
Curiousparty

Why are you so interested in Sunsine when you said in Eratat post 585 dated 18 Aug:

“The best strategy is avoid all S-chips...

there is enough undervalued non-Schip counters out there for us to avoid S-chips altogether...”

You should practice what you preach, and do not look at this company.

You said in Sunisne post 348 on 15 Aug:

“I don't feel "comfortable" revealing more info on how I think. Sorry for that. (I have my reasons)
If u want to find out more, can "PM" me. tks.”

If there are concerns about Sunsine which you are not comfortable to state publicly, why are you cautiously optimistic now?

[Curiousparty]

Pls do not leave my comments out of context. The following comment was in relation to the recent Erata incident.

And I hope you are posting by dint of your own judgment and not being "directed" by "people behind the scene".
(every phone call made in Spore is traceable).
Tks.

“The best strategy is avoid all S-chips...

there is enough undervalued non-Schip counters out there for us to avoid S-chips altogether...”

[Curiousparty]

Like I have already said umpteen times before, we just have to be more diligent with S-chips in general
(hence the use of the word "cautiously optimistic").

And pls stop "stalking me".
It would be more constructive if we focus more on the "substance" of the company (e.g. strategies they are adopting and why, their competitors, economic moat, etc.)

Tks.

You said in Sunisne post 348 on 15 Aug:

“I don't feel "comfortable" revealing more info on how I think. Sorry for that. (I have my reasons)
If u want to find out more, can "PM" me. tks.”