China Sunsine Chemicals Holdings

[CityFarmer]

The company is exploring new business, hotel investment and management. It doesn't look good to me...

(not vested)

ESTABLISHMENT OF A WHOLLY-OWNED SUBSIDIARY

The Board of Directors (the “Board”) of China Sunsine Chemical Holdings Ltd (the “Company” and together with its subsidiaries, the “Group”) wishes to announce that the wholly-owned subsidiary of the Company, Shandong Sunsine Chemical Co., Ltd (“Shandong Sunsine”), has established a wholly-owned subsidiary (“New Subsidiary”) in Shanxian County, Heze City, Shandong Province, the People’s Republic of China (“PRC”) on 16 December 2013.

Ref: http://infopub.sgx.com/FileOpen/Establis...eID=268000

[potatolover]

Does not look good to me too.... Hehe

[Curiousparty]

well, there are very strong bids, more than 600 lots at 20.5 cents...

don't think these people buy to "punt"...

The company is exploring new business, hotel investment and management. It doesn't look good to me...

(not vested)

ESTABLISHMENT OF A WHOLLY-OWNED SUBSIDIARY

The Board of Directors (the “Board”) of China Sunsine Chemical Holdings Ltd (the “Company” and together with its subsidiaries, the “Group”) wishes to announce that the wholly-owned subsidiary of the Company, Shandong Sunsine Chemical Co., Ltd (“Shandong Sunsine”), has established a wholly-owned subsidiary (“New Subsidiary”) in Shanxian County, Heze City, Shandong Province, the People’s Republic of China (“PRC”) on 16 December 2013.

Ref: http://infopub.sgx.com/FileOpen/Establis...eID=268000

[CityFarmer]

The company is exploring another new business? Production and supply of heating power? This time with a justification, but...?

-------
Steam is one of the important heating supplies used by Shandong Sunsine for desiccation of our products. Currently, in Shanxian Chemical Industrial Zone (“SCIZ”), steam is also used by other companies for heating and/or power supply. Each company in SCIZ has its own small boiler devices (“Private Boilers”) to provide steam for its own usage. This has resulted in higher carbon emission and energy wastage. In order to control and reduce carbon emission, Shanxian County government (“Local Government”) has mandated that a centralized heating company (“CHC”) be set up to provide steam to all the companies in SCIZ at market rate. Consequently, all Private Boilers will be shut down once the CHC is in operation, and the companies in the SCIZ will be required to purchase steam from CHC. As Shandong Sunsine is the largest company in the SCIZ and consumes the highest volume of steam (alone accounting for more than 50% of the total consumption by all companies in the SCIZ), the Local Government has indicated to Shandong Sunsine that either it sets up and operates the CHC, or provides financial assistance and/or guarantee to any third party which undertakes the operation of the CHC.

Management was of the view that instead of allowing another firm to control an important element of Shandong Sunsine’s production needs which it currently fulfills on its own, and in addition having to provide financial guarantee to such firm, it would be to its long term benefit that Shandong Sunsine set up and operate CHC (the “Project”) in order to better manage its exposure to such financial risk and any potential risk of disruption to production which may arise as a result of a third party operating the Project.

Ref: http://infopub.sgx.com/FileOpen/Incorp_S...eID=269268

[potatolover]

If anecdotal evidence from company seems suspicious , better to sell now and get out so that one would not regret later ...

Of course if interpretation of anecdotal evidence is wrong, this is a different thing altogether . Not asking forummers to buy or sell

[portuser]

Moderator
The remaining portion of the announcement refers to the findings of the feasibility study conducted by the Shangdong Institute of Heating and Electricity:

“Accordingly, a feasibility study was commissioned by Shandong Sunsine and carried out by the Shandong Institute of Heating and Electricity, to assess the financial and operational feasibility of Shandong Sunsine undertaking the Project.
Based on our needs for steam supply, our current steam cost, the requirements of Local Government, the results of the Feasibility Study, and the fact that it is customary practice in the PRC that users of steam pay the charges upfront before usage, and that the State Grid will purchase the by-product which is electricity from CHC which should ensure healthy cash-flow from operations, the Board is of the view that it is in the best interest of the Group to undertake the Project and for Shandong Sunsine to establish a New Subsidiary to operate the same.”

Sunsine has not stated explicitly the financial viability of the central heating company, besides the following:
(a) Its wholly-owned central heating company will sell steam at market rates;
(b) Users of steam pay the charges upfront before usage; and
© The state Grid will purchase electricity, the by-product. (Is steam to be produced at a constant rate, and when the demand for steam is low, the excess is diverted to drive turbine to generate electricity?)

As central heating will lower carbon emissions as well as the unit cost, and the Shanxian Chemical Industrial Zone will have no alternative sources of steam, the central heating company is unlikely to fail, given government’s resolve to curb air pollution in China.

[CityFarmer]

Moderator
The remaining portion of the announcement refers to the findings of the feasibility study conducted by the Shangdong Institute of Heating and Electricity:

“Accordingly, a feasibility study was commissioned by Shandong Sunsine and carried out by the Shandong Institute of Heating and Electricity, to assess the financial and operational feasibility of Shandong Sunsine undertaking the Project.
Based on our needs for steam supply, our current steam cost, the requirements of Local Government, the results of the Feasibility Study, and the fact that it is customary practice in the PRC that users of steam pay the charges upfront before usage, and that the State Grid will purchase the by-product which is electricity from CHC which should ensure healthy cash-flow from operations, the Board is of the view that it is in the best interest of the Group to undertake the Project and for Shandong Sunsine to establish a New Subsidiary to operate the same.”

Sunsine has not stated explicitly the financial viability of the central heating company, besides the following:
(a) Its wholly-owned central heating company will sell steam at market rates;
(b) Users of steam pay the charges upfront before usage; and
© The state Grid will purchase electricity, the by-product. (Is steam to be produced at a constant rate, and when the demand for steam is low, the excess is diverted to drive turbine to generate electricity?)

As central heating will lower carbon emissions as well as the unit cost, and the Shanxian Chemical Industrial Zone will have no alternative sources of steam, the central heating company is unlikely to fail, given government’s resolve to curb air pollution in China.

I didn't read the news in detail, because it is immaterial with my story of the company.

The company was selected to my watchlist, due to its link to growth of car population in China and its expansion plans. I am bullish on the car population growth in the next decade. The company seemed executing the expansion plans well too to capture the growth.

But the management has been deploying a low-margin-high-volume business model in the last few years. It is never a low-margin-high volume business, due to its low asset-turnover and high capex for expansion, IMO. The "wrong" business model seems verified by its deterioration of ROA/ROE in the last few years. The ROA/ROE (FY2008) was 16%/20%, while the last FY2012 was 3%/4%. That may be partly due to the excess capacity after expansion, but the key culprit was the business model, IMO.

Overcapacity is a lingering issue in all sectors of China, and market consolidation seems happening everywhere in China. One of feasible strategies is to capture market share in order to secure pricing power, and then raising ASP. It might work, but I doubt the management is focusing on it, with its "diversification" moves recently.

I will keep it within watch-list for few quarters and might remove it after then.

(not vested)

[portuser]

Sunsine now produces its own steam for drying rubber chemicals. Production of steam on a larger scale for supply to others cannot be viewed as straying from the core business.
On the other hand, owning the hotel and convention facilities is a diversion. If the company chose this on its own volition, its investment merits should be discounted.
Sunsine’s poor showing in 2012 was the results of several negative developments enumerated in the Chairman’s statement in the annual report.
Higher profit can be expected in 2013, going by rising quarterly profit:
1Q..................RMB11.7m
2Q...................RMB20.5m
3Q....................RMB27.1m
Profit in the first nine months of 2013, amounting to RMB59.2m, was higher than RMB32m of the whole of 2012. If 4Q profit was the same as 3Q, ROE would be 10.8%.
Gradual expansion over the years has resulted in Sunsine having about 15% of the world’s rubber accelerator output. The expansion has created little unused capacity.
Sunsine’s ventures into the other two types of rubber chemicals are producing mixed results.
Its insoluble sulphur is doing well – the existing 10,000-tonne plant has been running above its capacity, and a new 30,000-tonne has been built with an initial production of 10,000 tonnes.
The performance in 6PPD is less inspiring. The 15,000-tonne plant is running at low capacity because renowned tyre companies are taking longer to accredit the new product.
6PPD is a higher-grade anti-oxidant, and it takes many months to determine whether the prototyped tyres (manufactured with the addition of Sunsine’s 6PPD) deteriorate within the longer designated lifespans of quality tyres.
TMQ, the lower-grade anti-oxidant that Sunsine produced earlier (starting 2008) took a long while to gain volume. Combined sales of TMQ and 6PPD have been on the rise (Sunsine does not provide the breakdown):
.......................TMQ and 6PPD sold (tonnes)
2009…………………….1,361 (TMQ only)
2010…………………….2,971 (TMQ only)
2011……………………..2,061 (TMQ only)
2012……………………..5,183 (TMQ & 6PPD)
9 m of 2013…...........8,461(3,340 tonnes in the corresponding period of 2012)

1Q 2012……………........413 (TMQ only)
2Q 2012.……………......857 (TMQ & 6PPD)
3Q 2012....................2,070
4Q 2012...................1,842
1Q 2013...................2,072
2Q 2013...................2,900
3Q 2013...................3,489
The management has indicated that it is a matter of time when the existing 15,000-tonne 6PPD facility runs at high capacity. At the moment, the high fixed cost of running the 6PPD plant at a low capacity is hurting, but the pain is gradually going away.

[CityFarmer]

Sunsine now produces its own steam for drying rubber chemicals. Production of steam on a larger scale for supply to others cannot be viewed as straying from the core business.
On the other hand, owning the hotel and convention facilities is a diversion. If the company chose this on its own volition, its investment merits should be discounted.
Sunsine’s poor showing in 2012 was the results of several negative developments enumerated in the Chairman’s statement in the annual report.
Higher profit can be expected in 2013, going by rising quarterly profit:
1Q..................RMB11.7m
2Q...................RMB20.5m
3Q....................RMB27.1m
Profit in the first nine months of 2013, amounting to RMB59.2m, was higher than RMB32m of the whole of 2012. If 4Q profit was the same as 3Q, ROE would be 10.8%.

The net profit margin is improving since Q4 2012, which was net loss, and it reached about 6% on Q3 2013. Since FY2012 was a low year, benchmarking with it seems inappropriate. If Q4 is the same as Q3, full year net profit will be about RMB 86 mil. It is still lower than net profit in FY2011, which was RMB 100 mil. Yes, the ROA/ROE will be about 7%/11%. If the improvement sustains, we might be able to see the good old days, when ROA/ROE was around 13%/17% (FY2010) or even better the peak at 16%/20% (FY2008). It means about double the net profit of 86 mil.

I haven't given up yet, but I will not put in the money unless more certainties derived.

(not vested)

[CityFarmer]

It is pretty sure the car population is growing at a rapid pace..

Ford says Dec China auto sales up 35% on year

SHANGHAI] Ford Motor Co and its local partners in China sold a total of 94,838 vehicles on a wholesale basis in December, an increase of 35 per cent from a year earlier, the company said on Monday.

That compared to a 47 per cent increase in November and a 55 per cent jump in October.- Reuters

Source: Business Times Breaking News