China Sunsine Chemicals Holdings

[piaopiao]

Is the current share price of Sunsine too high?

[Bluechipfan]

Without a doubt thanks to input from YI and WJ, the sale proceeds of Sgd $17.5m would not be included as part of p/l and cannot be used for payment of dividend. The money will be retained as 'retained profit' and form part of company's equity (Personal view only, not accounting trained).

However, the company technically can still reward the shareholders with extra dividend. How? Assuming the company's net profit for FY17 is RMB300m (appx Sgd $60m) and in the past, only appx 10% of it will be paid as dividend, i.e., Sgd 6m. However, now if the company wanted to payout the Sgd $17.5m from the sale of treasury shares, theoretically, they can up the payout ratio higher than 10% (they have put in place 20% dividend policy recently). In this case, to payout the Sgd 17.5m on top of the normal payout, the company can hike the payout ratio to 40% so that the dividend amount would be Sgd 23.5m (17.5m from sale of treasure shares plus the usual 6m).

The Sgd 23.5m will be from current year's earning and can use for dividend purpose. So in a way the company says the proceeds will be used for future dividend payments they are not wrong. I think I don't have to bother with the accounting treatment of the treasury money as everything is legit.

I envisage huge increase of profit for the upcoming 2Q results. let's focus on company's business!

hi Bluechipfan,
I think what you said is applicable. I think the only "downside" is the OPMIs' expectation of matching the same dividend payout ratio in subsequent years, with no more 1-time gain. Maybe it could come as a form of "special dividend"?

Nonetheless, i disagree with your statement "I think I don't have to bother with the accounting treatment of the treasury money as everything is legit". I tend to think understanding the rules will give one a better "model of the entire structure of China Sunsine". Along the lines of specuvestor's Asset/Business/Structure - Somehow i feel that the key for the OPMI's evaluation of China Sunsine as a SG-incorporated holding company with a foreign majority shareholder with foreign domiciled assets, is the "structure" part of ABS.

For example along the lines of structure, i do find it weird that Chairman Xu is paid 3x more (in AR16) than the combined board and Top5 Mgt (although he is also paid roughly the same through the dividends from his 63% holdings) - It seems like he wields alot of power in CSC and could become the key singular criteria for successful investment of the OPMI. If this is the case, then i have to ask how well i know Chairman Xu and his true background. Since he is pretty rich, so I find it weird for him to buy an small unrelated tourism asset under the group? Finally, my big red flag on the structure would be Lead ID Benny Lim - He had been with ZIWO (another S-chip) for the past 8years, although he has resigned from there in April2017. Anyone who knows more about ZIWO, might understand where i am pointing towards.

Thanks WJ. Question on Chairman's salary was raised in the last AGM and noted by the management. Let's see what happen going forward. Chairman Xu is without a doubt a very significant individual in the company. I almost wanted to ask the management about succession plan but I noticed some corporate changes have taken place and I think I can put it off for the time being. Can't say much about the Fu Long resort but I previously mentioned that it could be use to facilitate company's business only, for example, hosting the business partners, customers, suppliers etc when they visit Sunsine in Shang Dong. I also vaguely recalled that in the announcement related to the purchase, it seem that downside was protected (previous debt the onus is on the local govt or something like that etc). As long as they don't lose money on the resort as a shareholder I am fine. Can't say anything about ID Benny Lim at the moment but noted ICH is back in recently after exited with profit via IPO. 

Frankly I don't know what you are implying with regard to the red flag. Sunsine, in my view, is not opaque. Even though it is based in China, I can get almost all the information I want about them. For example, I know of ALL their recent activities with regard to the 40 years celebration and much more. I know who were the VIPs attending their events etc. Best of all, based on what I know, I have occasionally email the company's management for further queries and they always address my queries accordingly and I can further evaluate their replies and form my own assessment. They have met my requirements and I will be staying vested with the company for long time to come if they continues to meet my investment thesis.

[piaopiao]

Specuvestor,

I think you are wrong.

Sunsine has been profitable every year post IPO and thererfore they have a huge retained earnings to pay out dividends.

Instead using the cash in China, they chose to pay the dividends from the cash in Singapore arising from the sale of treasury shares. This is legit.

[YMPL]

I too am doubtful that one can pay dividend out of reserves. Otherwise reval reserves, including FX, can be used to pay out. Capital reduction maybe possible, because the court has to be satisfied. But I don't recall seeing it before, maybe other VB with experience can quote an example.

I reckon the question is not on where the dividend is paying, but how to pay it.

The company has low payout ratio, thus should not be an issue to pay dividend from current earning. There are hurdles and cost to get the money out from China. With S$ in Singapore, it helps in paying the dividend.

I believe that paying out from earning reserve, do not need court approval, but not for other reserves.

[tiongkokgor]

Most important of all, China Sunsine has been viewed by the market as S-Chips, which all have a discount in their valuation.

As more investors travelled to China, visit their factories, meet their management, they slowly realised that they are real assets, real cash, and good people. So the biggest push now come from the re-rating towards a normal good company

Without a doubt thanks to input from YI and WJ, the sale proceeds of Sgd $17.5m would not be included as part of p/l and cannot be used for payment of dividend. The money will be retained as 'retained profit' and form part of company's equity (Personal view only, not accounting trained).

However, the company technically can still reward the shareholders with extra dividend. How? Assuming the company's net profit for FY17 is RMB300m (appx Sgd $60m) and in the past, only appx 10% of it will be paid as dividend, i.e., Sgd 6m. However, now if the company wanted to payout the Sgd $17.5m from the sale of treasury shares, theoretically, they can up the payout ratio higher than 10% (they have put in place 20% dividend policy recently). In this case, to payout the Sgd 17.5m on top of the normal payout, the company can hike the payout ratio to 40% so that the dividend amount would be Sgd 23.5m (17.5m from sale of treasure shares plus the usual 6m).

The Sgd 23.5m will be from current year's earning and can use for dividend purpose. So in a way the company says the proceeds will be used for future dividend payments they are not wrong. I think I don't have to bother with the accounting treatment of the treasury money as everything is legit.

I envisage huge increase of profit for the upcoming 2Q results. let's focus on company's business!

hi Bluechipfan,
I think what you said is applicable. I think the only "downside" is the OPMIs' expectation of matching the same dividend payout ratio in subsequent years, with no more 1-time gain. Maybe it could come as a form of "special dividend"?

Nonetheless, i disagree with your statement "I think I don't have to bother with the accounting treatment of the treasury money as everything is legit". I tend to think understanding the rules will give one a better "model of the entire structure of China Sunsine". Along the lines of specuvestor's Asset/Business/Structure - Somehow i feel that the key for the OPMI's evaluation of China Sunsine as a SG-incorporated holding company with a foreign majority shareholder with foreign domiciled assets, is the "structure" part of ABS.

For example along the lines of structure, i do find it weird that Chairman Xu is paid 3x more (in AR16) than the combined board and Top5 Mgt (although he is also paid roughly the same through the dividends from his 63% holdings) - It seems like he wields alot of power in CSC and could become the key singular criteria for successful investment of the OPMI. If this is the case, then i have to ask how well i know Chairman Xu and his true background. Since he is pretty rich, so I find it weird for him to buy an small unrelated tourism asset under the group? Finally, my big red flag on the structure would be Lead ID Benny Lim - He had been with ZIWO (another S-chip) for the past 9years, although he has resigned from there in April2017. Anyone who knows more about ZIWO, might understand where i am pointing towards.

Weijian,

You seem to suggest that Chairman of Sunsine should buy the tourism asset himself when you said: "Since he is pretty rich, so I find it weird for him to buy an small unrelated tourism asset under the group?" 

The tourism asset, valued at RMB 27m, was sold by the government to Sunsine for RMB 20m in Nov 2015 (p 95 and 96 of 2015 annual report). 

Earlier, when Sunsine gave up its old factory for redevolpement, the land use rights of the land had a remaining value of RMB 4.8m (pg 66 of 2012 AR).

The two developments seem to be related.

During a result briefing, the company indicated that the tourism asset purchase is one-off. Sunsine will remain focused on rubber chemicals which is promising and has high ROE in excess of 16%.

[Young Investor]

Weijian

I am a shareholder of Sunsine and not ZIWO. Can you clarify where you are pointing towards? Thanks.


Weijian wrote

"For example along the lines of structure, i do find it weird that Chairman Xu is paid 3x more (in AR16) than the combined board and Top5 Mgt (although he is also paid roughly the same through the dividends from his 63% holdings) - It seems like he wields alot of power in CSC and could become the key singular criteria for successful investment of the OPMI. If this is the case, then i have to ask how well i know Chairman Xu and his true background. Since he is pretty rich, so I find it weird for him to buy an small unrelated tourism asset under the group? Finally, my big red flag on the structure would be Lead ID Benny Lim - He had been with ZIWO (another S-chip) for the past 8years, although he has resigned from there in April2017. Anyone who knows more about ZIWO, might understand where i am pointing towards."

[specuvestor]

Specuvestor,

I think you are wrong.

Sunsine has been profitable every year post IPO and thererfore they have a huge retained earnings to pay out dividends.

Instead using the cash in China, they chose to pay the dividends from the cash in Singapore arising from the sale of treasury shares. This is legit.

I too am doubtful that one can pay dividend out of reserves. Otherwise reval reserves, including FX, can be used to pay out. Capital reduction maybe possible, because the court has to be satisfied. But I don't recall seeing it before, maybe other VB with experience can quote an example.

I reckon the question is not on where the dividend is paying, but how to pay it.

The company has low payout ratio, thus should not be an issue to pay dividend from current earning. There are hurdles and cost to get the money out from China. With S$ in Singapore, it helps in paying the dividend.

I believe that paying out from earning reserve, do not need court approval, but not for other reserves.

I refer to 2016 AR page 47. Shareholders get paid from retained earnings of the Holdco. As of end 2016 that figure is RMB84.1m. You can also refer to Notes 22 & 23 for more clarity on the movement and maybe a better guesstimate of how much dividend the company can pay

PS thanks Weijian for the link but the Singtel link is down?

[weijian]

I refer to 2016 AR page 47. Shareholders get paid from retained earnings of the Holdco. As of end 2016 that figure is RMB84.1m. You can also refer to Notes 22 & 23 for more clarity on the movement and maybe a better guesstimate of how much dividend the company can pay

PS thanks Weijian for the link but the Singtel link is down?

i checked the copy/paste link for mistakes and there isn't...I m not sure why the "short cut" doesn't work. I have edited the post and if you do a manual copy/paste to browser webpage, it will then work.
Apologize for been a web dummy 101..

[weijian]

Weijian,

You seem to suggest that Chairman of Sunsine should buy the tourism asset himself when you said: "Since he is pretty rich, so I find it weird for him to buy an small unrelated tourism asset under the group?" 

The tourism asset, valued at RMB 27m, was sold by the government to Sunsine for RMB 20m in Nov 2015 (p 95 and 96 of 2015 annual report). 

Earlier, when Sunsine gave up its old factory for redevolpement, the land use rights of the land had a remaining value of RMB 4.8m (pg 66 of 2012 AR).

The two developments seem to be related.

During a result briefing, the company indicated that the tourism asset purchase is one-off. Sunsine will remain focused on rubber chemicals which is promising and has high ROE in excess of 16%.

hi tiongkokgor,
Generally when rich people start new projects, they will take it off the listed co. books. Once it matures, then they try to find a way to sell it to the listed co.

I haven't dwell too much into this tourism asset buy, TBH...It was just something that i picked it off as being "weird" when i read AR16. You might be right about the series of "transactions" with the PRC local gov..

[Young Investor]

Hi Specuvestor,

Notes 22 indicated that the company retained profit at the end of 2016 was Rmb$84 million. In May 2017, rmb$33 million was used to pay up dividend of 1.5 cents. Are you saying that the company can only pay 2 cents of dividend in the future with the remaining rmb$51 million?



Specuvestor wrote:

"I refer to 2016 AR page 47. Shareholders get paid from retained earnings of the Holdco. As of end 2016 that figure is RMB84.1m. You can also refer to Notes 22 & 23 for more clarity on the movement and maybe a better guesstimate of how much dividend the company can pay"