China Sunsine Chemicals Holdings

[CityFarmer]

We are still on same page, the passenger tire. The complain was made earlier, but the duty was imposed much later in 2nd half of 2015 after the "shouting" from China side, based on my reading. I am not familiar on the US import/export, but I guess it might be "lead-time" involved, thus the full impact might be quarter(s) away.

http://www.tirebusiness.com/article/2015...ort-duties

Any other trusted link(s) are saying otherwise?

(not vested)

We could be thinking about different anti dumping duties. U.S. anti dumping duties on China passenger car tyres was in place for the most of 2015. Anti dumping duties on light truck tyres are now being considered and if successful may be implemented 2nd half of 2016. However light truck tyres are a smaller proportion of China tyre exports to US.

Hi Cityfarmer,
Why is anti-dumping duty a good reason for inventory depletion in the tyre industry? I thought it would slow down inventory depletion. Thanks.

The China tire companies, were rushing to sell, before the duty is imposed by US. What do you think on the reasoning?

(not vested)

P/S: Put a lower weight on Chairman statement, is not casting a doubt on his integrity, but just having a diff opinion from his. I have a similar doubt on Chairman Ren's statement of YZJ on shipping future. Mr. Ren is well-respected as a person with integrity, which I share. 

[Sfsh12]

Just to correct my earlier posting. Investigation of anti-dumping duties on China passenger and light trucks tyres was initiated in mid 2014. The first verdict was reached in Jan/Feb 2015 and the final verdict was reached July/Aug 2015 after appeal by China tyre makers. According to the article below, tyre production level started to decrease early part of 2015.

In Feb 2016, US initiated investigation on trucks and public vehicle tyres and the expected verdict is by end June 2016. This may cause tyre makers to sell early before the anti dumping duties are imposed. (Cityfarmer, you have a point here.)

Below is an article about positive 1Q16 results of China tyre makers due to increase in demand and thus production levels.

2016第一季度轮胎企业业绩为何如此靓丽
http://www.cpcia.org.cn/news/hyfx/2016-4/154171.shtml

We are still on same page, the passenger tire. The complain was made earlier, but the duty was imposed much later in 2nd half of 2015 after the "shouting" from China side, based on my reading. I am not familiar on the US import/export, but I guess it might be "lead-time" involved, thus the full impact might be quarter(s) away.

http://www.tirebusiness.com/article/2015...ort-duties

Any other trusted link(s) are saying otherwise?

(not vested)

We could be thinking about different anti dumping duties. U.S. anti dumping duties on China passenger car tyres was in place for the most of 2015. Anti dumping duties on light truck tyres are now being considered and if successful may be implemented 2nd half of 2016. However light truck tyres are a smaller proportion of China tyre exports to US.

Hi Cityfarmer,
Why is anti-dumping duty a good reason for inventory depletion in the tyre industry? I thought it would slow down inventory depletion. Thanks.

The China tire companies, were rushing to sell, before the duty is imposed by US. What do you think on the reasoning?

(not vested)

P/S: Put a lower weight on Chairman statement, is not casting a doubt on his integrity, but just having a diff opinion from his. I have a similar doubt on Chairman Ren's statement of YZJ on shipping future. Mr. Ren is well-respected as a person with integrity, which I share. 

[CityFarmer]

Just to correct my earlier posting. Investigation of anti-dumping duties on China passenger and light trucks tyres was initiated in mid 2014. The first verdict was reached in Jan/Feb 2015 and the final verdict was reached July/Aug 2015 after appeal by China tyre makers. According to the article below, tyre production level started to decrease early part of 2015.

In Feb 2016, US initiated investigation on trucks and public vehicle tyres and the expected verdict is by end June 2016. This may cause tyre makers to sell early before the anti dumping duties are imposed. (Cityfarmer, you have a point here.)

Below is an article about positive 1Q16 results of China tyre makers due to increase in demand and thus production levels.

2016第一季度轮胎企业业绩为何如此靓丽
http://www.cpcia.org.cn/news/hyfx/2016-4/154171.shtml

It is mostly aligned with my understanding. Based on the info, it seems the lower ASP in 1Q2016, is due to pressure from supply side, not from lower demand from tire company. What do you think?

[Sfsh12]

Based on my understanding, ASP is likely to track oil prices with a time lag.

The main raw material of rubber accelerator is aniline which is a oil derivative. Sunsine sets its selling price on a cost plus reasonable margin basis. There are strategic and competitive reasons for doing so. Also, since domestic sales are priced monthly while exports are priced quarterly, there is a time lag to see the effects in a rising or falling environment.

If you take a look at 1 year crude oil prices, for the most part of 1Q16, prices were at its lowest with prices rising only from 2nd half of 1Q16.

Demand for Sunsine's products was good in 1Q16. Sales volume of 30k tons in 1Q16 is the highest for any 1Q and the 2nd highest for any quarters historically. This 30k volume is more remarkable considering 1-2 weeks CNY break in 1Q when production and sale ceases.

Sunsine has explained that this is due to some of its competitors production were suspended by the authorities as they did not meet environment protection standards. Going forward in 2Q, Sunsine expects that utilization rates at tyre factories to increase and thus leading to higher demand for its products.

[vested]

Just to correct my earlier posting. Investigation of anti-dumping duties on China passenger and light trucks tyres was initiated in mid 2014. The first verdict was reached in Jan/Feb 2015 and the final verdict was reached July/Aug 2015 after appeal by China tyre makers. According to the article below, tyre production level started to decrease early part of 2015.

In Feb 2016, US initiated investigation on trucks and public vehicle tyres and the expected verdict is by end June 2016. This may cause tyre makers to sell early before the anti dumping duties are imposed. (Cityfarmer, you have a point here.)

Below is an article about positive 1Q16 results of China tyre makers due to increase in demand and thus production levels.

2016第一季度轮胎企业业绩为何如此靓丽
http://www.cpcia.org.cn/news/hyfx/2016-4/154171.shtml

It is mostly aligned with my understanding. Based on the info, it seems the lower ASP in 1Q2016, is due to pressure from supply side, not from lower demand from tire company. What do you think?

[CityFarmer]

I have done the regular review on the company. In short, a well-planned and managed company, but the sector biz risk is too uncertain for a bet.

The company’s chemical products are near commodities, with little room for differentiation. China Sunsine is one of the market leaders but still a price-taker, IMO. I don't think the selling pricing is an controlled cost-plus model, based on the last few years of tracking between material cost vs ASP trends. The company has done well, in customer relationship, and able to sustain the volume, but it has little control on the selling prices.

How sensitive of the average selling price (ASP) on net profit? The ASP has significant impact on the company revenue, and profits. A simple sensitivity test on FY2015, a reduction of -10% in overall ASP, with all others remain the same, will eliminate almost all the net profit in FY2015

Furthermore, the key raw material cost, aniline, is volatile. The price variance of +-10%, will translate to +-15-30 RMB mil differences in net profit, accordingly to company annual reports. The net profits were 220 RMB mil (FY2014, a peak), and 77 RMB mil (FY2013, the year before).

Last and not least, the sector has over-capacity issue, both on manufacturers, as well as customers. It has no near-term solution, albeit the recent tightening of environmental protection regulation, has marginally improved the issue. Some investors are optimistic on market consolidation to “solve” the overcapacity issue, but I really doubt it has even started, with the ASP trend.

The company strategy, is to keep volume up to support the top-line growth, but there is a limit. Top-line might look OK, but the margins will suffer eventually, with unfavorable selling prices, due to ever increasing fixed expenses.

The overall ASP continue its downtrend (2Q2016 ASP, is the lowest in last 10 years), and aniline price has gone up recently (see link below). The company net profit might go into red, if ASP trend isn’t reversed and turn favorable.

Sources: http://www.sunsirs.com/uk/prodetail-258.html

Best wish to vested VBs, and may be a better bet elsewhere for me. 

(not vested, and all comments are welcomed)

[Bluechipfan]

I have done the regular review on the company. In short, a well-planned and managed company, but the sector biz risk is too uncertain for a bet.

The company’s chemical products are near commodities, with little room for differentiation. China Sunsine is one of the market leaders but still a price-taker, IMO. I don't think the selling pricing is an controlled cost-plus model, based on the last few years of tracking between material cost vs ASP trends. The company has done well, in customer relationship, and able to sustain the volume, but it has little control on the selling prices.

How sensitive of the average selling price (ASP) on net profit? The ASP has significant impact on the company revenue, and profits. A simple sensitivity test on FY2015, a reduction of -10% in overall ASP, with all others remain the same, will eliminate almost all the net profit in FY2015

Furthermore, the key raw material cost, aniline, is volatile. The price variance of +-10%, will translate to +-15-30 RMB mil differences in net profit, accordingly to company annual reports. The net profits were 220 RMB mil (FY2014, a peak), and 77 RMB mil (FY2013, the year before).

Last and not least, the sector has over-capacity issue, both on manufacturers, as well as customers. It has no near-term solution, albeit the recent tightening of environmental protection regulation, has marginally improved the issue. Some investors are optimistic on market consolidation to “solve” the overcapacity issue, but I really doubt it has even started, with the ASP trend.

The company strategy, is to keep volume up to support the top-line growth, but there is a limit. Top-line might look OK, but the margins will suffer eventually, with unfavorable selling prices, due to ever increasing fixed expenses.

The overall ASP continue its downtrend (2Q2016 ASP, is the lowest in last 10 years), and aniline price has gone up recently (see link below). The company net profit might go into red, if ASP trend isn’t reversed and turn favorable.

Sources: http://www.sunsirs.com/uk/prodetail-258.html

Best wish to vested VBs, and may be a better bet elsewhere for me. 

(not vested, and all comments are welcomed)

I am vested and thank you for your wishes. Notwithstanding your alarming view as highlighted above, it's hard to imagine the net profit for Sunsine would shift from few hundred millions rmb to negative. For that to happen, the whole rubber chemical industry has to collapse which mean all rubber companies have to close shop. The industry is facing headwind but is it possible for the whole rubber industry to collapse? Do we foresee all car makers will stop making cars and all existing cars don't have to change their tires anymore? Overcapacity doesn't mean no demand and overcapacity can strengthen the already strong players and weak operators would most likely cease to exist.  

Sunsine is the market leader and is in the position to sacrifice margin for market shares in the light of current economy climate. It can also withstand overcapacity issue as weaker operators will be weeded out. Just like Keppel and Sembcorp are still standing strong and the like of Swiber and Marco Polo are feeling the heat. I am fortunate to have accumulated Sunsine since 20 cents range and my average holding cost is mid 30 cents. With the dividends received so far and the low holding cost, I have cushion and I have confidence Sunsine will continue to do well. 

[tiongkokgor]

ASP for all

products declined by 15% to RMB16,190 per
ton in FY2015 as compared to RMB19,062
per ton in the previous year. This was mainly
due to the significant drop in raw material
prices resulted from lower crude oil price.


If the slowdown in China’s GDP growth

continues, and international crude oil prices
remain depressed, our products’ selling price
may continue to come under pressure.

I would appreciate if you can your research into ASPs and anilene prices.

Still preliminary but my guess is that China Sunsine's pricing is using a cost-plus model, contrary to Cityfarmber's statement.



CityFarmerI have done the regular review on the company. In short, a well-planned and managed company, but the sector biz risk is too uncertain for a bet.

The company’s chemical products are near commodities, with little room for differentiation. China Sunsine is one of the market leaders but still a price-taker, IMO. I don't think the selling pricing is an controlled cost-plus model, based on the last few years of tracking between material cost vs ASP trends. The company has done well, in customer relationship, and able to sustain the volume, but it has little control on the selling prices.

How sensitive of the average selling price (ASP) on net profit? The ASP has significant impact on the company revenue, and profits. A simple sensitivity test on FY2015, a reduction of -10% in overall ASP, with all others remain the same, will eliminate almost all the net profit in FY2015

Furthermore, the key raw material cost, aniline, is volatile. The price variance of +-10%, will translate to +-15-30 RMB mil differences in net profit, accordingly to company annual reports. The net profits were 220 RMB mil (FY2014, a peak), and 77 RMB mil (FY2013, the year before).

Last and not least, the sector has over-capacity issue, both on manufacturers, as well as customers. It has no near-term solution, albeit the recent tightening of environmental protection regulation, has marginally improved the issue. Some investors are optimistic on market consolidation to “solve” the overcapacity issue, but I really doubt it has even started, with the ASP trend.

The company strategy, is to keep volume up to support the top-line growth, but there is a limit. Top-line might look OK, but the margins will suffer eventually, with unfavorable selling prices, due to ever increasing fixed expenses.

The overall ASP continue its downtrend (2Q2016 ASP, is the lowest in last 10 years), and aniline price has gone up recently (see link below). The company net profit might go into red, if ASP trend isn’t reversed and turn favorable.

Sources: http://www.sunsirs.com/uk/prodetail-258.html

Best wish to vested VBs, and may be a better bet elsewhere for me. 

(not vested, and all comments are welcomed)

[weijian]

(not vested, and all comments are welcomed)

I am vested and thank you for your wishes. Notwithstanding your alarming view as highlighted above, it's hard to imagine the net profit for Sunsine would shift from few hundred millions rmb to negative. For that to happen, the whole rubber chemical industry has to collapse which mean all rubber companies have to close shop. The industry is facing headwind but is it possible for the whole rubber industry to collapse? Do we foresee all car makers will stop making cars and all existing cars don't have to change their tires anymore? Overcapacity doesn't mean no demand and overcapacity can strengthen the already strong players and weak operators would most likely cease to exist.  

Sunsine is the market leader and is in the position to sacrifice margin for market shares in the light of current economy climate. It can also withstand overcapacity issue as weaker operators will be weeded out. Just like Keppel and Sembcorp are still standing strong and the like of Swiber and Marco Polo are feeling the heat. I am fortunate to have accumulated Sunsine since 20 cents range and my average holding cost is mid 30 cents. With the dividends received so far and the low holding cost, I have cushion and I have confidence Sunsine will continue to do well. 

I can see a couple of behavioral mistakes from this post alone:
(1) The absence of evidence, does not equate to the evidence of absence.
(2) For equity owners, there is no practical difference between a company barely surviving, or shutting down in the face of a large scale industry change. In both cases, equity owners will most probably suffer a permanent capital loss. We don't seem to differentiate between causes and effects, very effectively.
(3) Anchoring your investment costs believing it is a "cushion". So $ that is won from the house, remains risk money and not your hard-earned money (ouch!)

[Bluechipfan]

3Q results coming up soon. Wonder how will Sunsine perform this quarter? 3Q2014 net profit was RmB83m.

(not vested, and all comments are welcomed)

I am vested and thank you for your wishes. Notwithstanding your alarming view as highlighted above, it's hard to imagine the net profit for Sunsine would shift from few hundred millions rmb to negative. For that to happen, the whole rubber chemical industry has to collapse which mean all rubber companies have to close shop. The industry is facing headwind but is it possible for the whole rubber industry to collapse? Do we foresee all car makers will stop making cars and all existing cars don't have to change their tires anymore? Overcapacity doesn't mean no demand and overcapacity can strengthen the already strong players and weak operators would most likely cease to exist.  

Sunsine is the market leader and is in the position to sacrifice margin for market shares in the light of current economy climate. It can also withstand overcapacity issue as weaker operators will be weeded out. Just like Keppel and Sembcorp are still standing strong and the like of Swiber and Marco Polo are feeling the heat. I am fortunate to have accumulated Sunsine since 20 cents range and my average holding cost is mid 30 cents. With the dividends received so far and the low holding cost, I have cushion and I have confidence Sunsine will continue to do well. 

I can see a couple of behavioral mistakes from this post alone:
(1) The absence of evidence, does not equate to the evidence of absence.
(2) For equity owners, there is no practical difference between a company barely surviving, or shutting down in the face of a large scale industry change. In both cases, equity owners will most probably suffer a permanent capital loss. We don't seem to differentiate between causes and effects, very effectively.
(3) Anchoring your investment costs believing it is a "cushion". So $ that is won from the house, remains risk money and not your hard-earned money (ouch!)

Thank you for your insightful thoughts and views. What count is realised gain and paper gain. I am doing all right on these 2 aspects. The cushion allow me to hold on to the investment comfortably (paper gain) and allow me to liquidate in time when sign of trouble surfaces. So far, the investment thesis remains unchanged to me as far as sunsine is concerned so I will continue to be vested. Sometimes too much theories make you overthink too much and do too little. Ouch to you too!😎

[BlueKelah]

I have done the regular review on the company. In short, a well-planned and managed company, but the sector biz risk is too uncertain for a bet.

thought you been saying that u look at company first rather than sector? so sector biz is a concern for you too now?
 
Do I sense a change in ur analysis method or is this a special case? ;D