China Sunsine Chemicals Holdings

[simpleman]

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.

Will this company turn out to be a fraud?
It is serving major tyre manufacturuers.
The borrowings are not high, and the company has paid a dividend every year after listing in 2007.
If it is not credible, will the Government appoint it to operate the heating company to supply steam to companies in the Shanxian Chemical Industrial Zone?
Just some points that suggest that company may not be a fake.

[CityFarmer]

Will this company turn out to be a fraud?
It is serving major tyre manufacturuers.
The borrowings are not high, and the company has paid a dividend every year after listing in 2007.
If it is not credible, will the Government appoint it to operate the heating company to supply steam to companies in the Shanxian Chemical Industrial Zone?
Just some points that suggest that company may not be a fake.

I don't think the company is a fraud, but it doesn't automatically mean profitable enough for our money

(not vested)

[simpleman]

If it is no fraud, the company seems underpriced with its PE of 7 and NAV of 36 Singapore cent, and a dividend yield of 4.4%.

The question is whether future profit will be better.

In the most recent news release, Sunsine Chairman stated that “although the rubber chemicals industry is still facing overcapacity pressure, the Group has overcome such difficulty and further enhanced its profit margin, thanks to our successful marketing strategy and our superior quality and services.”

We need to see whether the company is now in a position to raise prices.

[Curiousparty]

The very strong bids at 23 cents suggested that some people or someone has a very strong conviction that this is not a fraud ...

[CityFarmer]

If it is no fraud, the company seems underpriced with its PE of 7 and NAV of 36 Singapore cent, and a dividend yield of 4.4%.

The question is whether future profit will be better.

In the most recent news release, Sunsine Chairman stated that “although the rubber chemicals industry is still facing overcapacity pressure, the Group has overcome such difficulty and further enhanced its profit margin, thanks to our successful marketing strategy and our superior quality and services.”

We need to see whether the company is now in a position to raise prices.

NAV of 36 cents per share is right, but 58% of the asset is PPE, and 18% is inventories. May be the inventories is valuable, but I am not quite sure on the PPE. So PB needs quite a bit of adjustments.

PE of close to 7 is also right. FYI, SGX's S-chip average PE is about 7.

But I do agree the ability to raise ASP is critical for the company future.

(not vested)

[simpleman]

If it is no fraud, the company seems underpriced with its PE of 7 and NAV of 36 Singapore cent, and a dividend yield of 4.4%.

The question is whether future profit will be better.

In the most recent news release, Sunsine Chairman stated that “although the rubber chemicals industry is still facing overcapacity pressure, the Group has overcome such difficulty and further enhanced its profit margin, thanks to our successful marketing strategy and our superior quality and services.”

We need to see whether the company is now in a position to raise prices.

NAV of 36 cents per share is right, but 58% of the asset is PPE, and 18% is inventories. May be the inventories is valuable, but I am not quite sure on the PPE. So PB needs quite a bit of adjustments.

PE of close to 7 is also right. FYI, SGX's S-chip average PE is about 7.

But I do agree the ability to raise ASP is critical for the company future.

(not vested)

There are 3 possibilities for PPE to be higher than what it should be.
One, Sunsine has overpaid. Two, Sunsine depreciates PPE too slowly. Three, poor maintenance resulting in PPE in a poor state.
 
Are there signs I should examine?
 
According to its annual report, the useful lives of plant and machinery are 4 to 10 years, and 12 to 20 years for buildings.

[CityFarmer]

NAV of 36 cents per share is right, but 58% of the asset is PPE, and 18% is inventories. May be the inventories is valuable, but I am not quite sure on the PPE. So PB needs quite a bit of adjustments.

PE of close to 7 is also right. FYI, SGX's S-chip average PE is about 7.

But I do agree the ability to raise ASP is critical for the company future.

(not vested)

There are 3 possibilities for PPE to be higher than what it should be.
One, Sunsine has overpaid. Two, Sunsine depreciates PPE too slowly. Three, poor maintenance resulting in PPE in a poor state.
 
Are there signs I should examine?
 
According to its annual report, the useful lives of plant and machinery are 4 to 10 years, and 12 to 20 years for buildings.

IMO, the reason is more on the nature of the chemical manufacturing business, less on your reasons quoted.

Since we are in the topic of the PPE, let's explore more on it.

First of all, FYI, the asset turnover is getting better in FY2013. It means the company is able to sell more per $ of asset, which larger part of it is PPE. It might due to the newer facilities, and the old facilities were already written off/impaired. The performance is above average IMO, especially under the depressed ASP.

If you are sharp, you may notice that the depreciation curves have been changed along with the new factories. In FY2010, the useful lives were

Plant and machinery 4 - 7 years
Buildings 12 - 15 years

It seems reasonable to me. With the newer curves and larger PPE, the dep/amor expenses increased quite a bit. In FY2010, the dep/amor expenses were around 23 mil, but close to 75 mil in FY2013.

(not vested)

[simpleman]

NAV of 36 cents per share is right, but 58% of the asset is PPE, and 18% is inventories. May be the inventories is valuable, but I am not quite sure on the PPE. So PB needs quite a bit of adjustments.

PE of close to 7 is also right. FYI, SGX's S-chip average PE is about 7.

But I do agree the ability to raise ASP is critical for the company future.

(not vested)

There are 3 possibilities for PPE to be higher than what it should be.
One, Sunsine has overpaid. Two, Sunsine depreciates PPE too slowly. Three, poor maintenance resulting in PPE in a poor state.
 
Are there signs I should examine?
 
According to its annual report, the useful lives of plant and machinery are 4 to 10 years, and 12 to 20 years for buildings.

IMO, the reason is more on the nature of the chemical manufacturing business, less on your reasons quoted.

Since we are in the topic of the PPE, let's explore more on it.

First of all, FYI, the asset turnover is getting better in FY2013. It means the company is able to sell more per $ of asset, which larger part of it is PPE. It might due to the newer facilities, and the old facilities were already written off/impaired. The performance is above average IMO, especially under the depressed ASP.

If you are sharp, you may notice that the depreciation curves have been changed along with the new factories. In FY2010, the useful lives were

Plant and machinery 4 - 7 years
Buildings 12 - 15 years

It seems reasonable to me. With the newer curves and larger PPE, the dep/amor expenses increased quite a bit. In FY2010, the dep/amor expenses were around 23 mil, but close to 75 mil in FY2013.

(not vested)

City Farmer

Am I right in saying that there are 2 different concepts here?

One is the value of PPE, and in your earlier post, you mentioned the possibility of PPE being high.

In this respect, your discovery that Sunsine increased the useful lives of PPE after 2010 is important. I view the increase unfavourably.

But when you introduced the concept of asset turnover, you seemed to suggest that the higher turnover in 2013, resulting from higher PPE, is to be viewed positively.

Can you enlighten?

Thank you very much.

[CityFarmer]

City Farmer

Am I right in saying that there are 2 different concepts here?

One is the value of PPE, and in your earlier post, you mentioned the possibility of PPE being high.

In this respect, your discovery that Sunsine increased the useful lives of PPE after 2010 is important. I view the increase unfavourably.

But when you introduced the concept of asset turnover, you seemed to suggest that the higher turnover in 2013, resulting from higher PPE, is to be viewed positively.

Can you enlighten?

Thank you very much.

Within the context of our previous discussion, there were two different concept indeed.

One concept is on valuation. IMO, we shouldn't value the company by PB. It is difficult to value its asset accurately, especially the PPE. I don't even sure the PPE has any resale value.

The other concept is on the company production efficiency. Asset turnover serves as useful indicator for the efficiency, IMO. With the rapid expansion in the last few years, the efficiency seems maintained pretty well. That gave me the confidence on its execution.

Of course, the asset turnover can be manipulated by faster dep/amor on its asset. That was the reason I highlighted it. So far I am still comfortable with the change, and the confidence remains intact.

(not vested)

[simpleman]

Cityfarmer

Thank you for pointing out the importance of asset turnover.

I notice from the cash flows statement that in 2013, Sunsine spent RMB 147m (with RMB 90m in 4Q alone) on PPE, against RMB 44m in 2012.

Do I need to make adjustments in calculating asset turnover, since the PPE acquired during a year was unlikely to make a contribution in the full year.

The two projects in 2013 were the new insoluble factory for RMB 100m and the DPG accelerator line for 25m. The factory will start prouction only in 2014, and the DPG produced only in the last quarter of 2014.