China Sunsine Chemicals Holdings

[Sfsh12]

At the recent AGM, management indicated that capital expenditure for the hotel investment will not be high.

Of the RMB338.9m borrowing, RMB50m is long term due in 2017. My guess is that this amount is likely to be for the investment in the central heating company. When completed, the co-gen heating plant is expected to be more energy efficient than the boiler that Sunsine is currently using.

The latest update of the company debt level, RMB 338.9 mil.

Base on my estimation, the debt level will be increased to a level between RMB 340 mil - 400 mil, both for working capital and new project ventures...

(not vested)

http://infopub.sgx.com/FileOpen/CS_Discl...eID=304451

Do you mean that borrowing is a good sign? The higher the borrowing, the higher the production rate? What are the new project ventures in the pipeline for chinasunsine? Thanks.

I assume the questions are directed to me. FYI, I am the devil advocate in this thread.

Is the borrowing a good sign? No, in the context of this company, albeit borrowing doesn't always mean negative. In some cases, it is a very useful tool.

You might want to read the previous posts in this thread. The company has embarked on non-core business ventures recently.

http://www.valuebuddies.com/thread-2006-...l#pid69390

http://www.valuebuddies.com/thread-2006-...l#pid70203

[CityFarmer]

At the recent AGM, management indicated that capital expenditure for the hotel investment will not be high.

Of the RMB338.9m borrowing, RMB50m is long term due in 2017. My guess is that this amount is likely to be for the investment in the central heating company. When completed, the co-gen heating plant is expected to be more energy efficient than the boiler that Sunsine is currently using.

Assuming you are right, the major part of the borrowing is for the core business working capital. Will that raise a concern, with a "promising outlook", which suppose to greatly improve the cash flow of the company?

I am a risk-averse investor, thus decided to stay at the sideline.

(not vested)

[simpleman]

There are merits on the company, thus worth a close monitoring, but the company has been suffering with oversupply in its market, thus the downward pressure on selling price since FY2011.

Will the overcapacity be solved by the recent tightening of anti-pollution measures? Well, it might help, but non-sustainable, IMO.

Well, I might be wrong.

(not vested, but monitoring)

MBT is the feedstock for making three major rubber accelerators (TBBS, CBS and MBTS). Lax enforcement in the past led to many MBT factories being set up.

The sharp rise in MBT price, from RMB 13,700 per tonne to RMB 17,500, suggests tight supply following closure of some MBT factories which failed on environmental counts.

Before recent strict enforcement, Sunsine dealt with over-capacity in the rubber accelerator industry by slashing product prices in Dec 2011 to gain market share. Profit plunged to RMB 32m in 2012 (from RMB 99m the year before) as a consequence, but recovered to RMB 77m in 2013 as sales volume grew.

This strategy should see 2014 profit rising further even without government’s intervention.

Government’s action has reduced supply and levelled the playing field.

New investors have to comply with stringent pollution control requirements and incur the necessary costs. Over the years, Sunsine has accumulated experience in this area. In 2013, it cut down tap water usage and reduced waste water discharge, according to annual report 2013.

The graph in the Nextinsight 3 Jul article shows that prices of MBT-based products sold by a Shangdon-based factory spiked in June, peaked around the last day of the month:

………………ASP in 1Q 2014……….ASP in 2Q 14...…….Price on 30 June 14
TBBS…………..22,500………………….…24,000……….……………25,214
CBS…...........19,100…………………….21,000……………….…..22,650
MBTS...…….…16,300……..……………..19,800………..………...22,222

Prices have hardly changed after 30 June.

Aren’t prices too high and set for down trend?

[Sfsh12]

According to CEO of China Sunsine, MBT prices has only risen to a reasonable level. As the pressure to produce cleanly and safely has intensified, the investment in this area has also increased. For example, the requirements for waste water discharge has become stricter, waste water treatment cost has also increased.

“因为各地的安全、环保压力越来越大，这方面投入的成本也越来越大。像废水处理中，我们当地以前化学需氧量排放标准每升是200毫克，后来降到100毫克，现在由于企业处在南水北调的干线上，标准已经降到每升60毫克，废水处理成本大大增加了。”刘径福说，“对于促进剂M来说，现在的价格仅仅涨到了一个合理的水平。”

http://www.ccin.com.cn/ccin/news/2014/06...8362.shtml

As MBT is the key raw material for TBBS, CBS and MBTS, it follows that their price increase is now only to a reasonable level.

[portuser]

The graph in the Nextinsight 3 Jul article shows that prices of MBT-based products sold by a Shangdon-based factory spiked in June, peaked around the last day of the month:

………………ASP in 1Q 2014……….ASP in 2Q 14...…….Price on 30 June 14
TBBS…………..22,500………………….…24,000……….……………25,214
CBS…...........19,100…………………….21,000……………….…..22,650
MBTS...…….…16,300……..……………..19,800………..………...22,222

Prices have hardly changed after 30 June.

Aren’t prices too high and set for down trend?

Based on data in the Nextinsight article of 3 July, current accelerator ASP is around RMB 21,900.

Before Sunsine cut accelerator prices in Dec 2011 to gain market share, ASP was RMB 21,100.

As price of aniline (the main raw material for making MBT) is now higher than in 2011, the two ASPs are not much different, although they are two and a half years apart.

[Sfsh12]

Portuser,
Do you mind sharing how current ASP of accelerator is derived?
Thanks!

The graph in the Nextinsight 3 Jul article shows that prices of MBT-based products sold by a Shangdon-based factory spiked in June, peaked around the last day of the month:

………………ASP in 1Q 2014……….ASP in 2Q 14...…….Price on 30 June 14
TBBS…………..22,500………………….…24,000……….……………25,214
CBS…...........19,100…………………….21,000……………….…..22,650
MBTS...…….…16,300……..……………..19,800………..………...22,222

Prices have hardly changed after 30 June.

Aren’t prices too high and set for down trend?

Based on data in the Nextinsight article of 3 July, current accelerator ASP is around RMB 21,900.

Before Sunsine cut accelerator prices in Dec 2011 to gain market share, ASP was RMB 21,100.

As price of aniline (the main raw material for making MBT) is now higher than in 2011, the two ASPs are not much different, although they are two and a half years apart.

[portuser]

Portuser,
Do you mind sharing how current ASP of accelerator is derived?
Thanks!

Sfsh12
There is a typo error in my earlier post -- the estimated current accelerator ASP is around RMB 21,700 instead of RMB 21,900.

The derivation is shown below.

The current average price of the three MBT-based rubber accelerators is RMB 4,062 higher than in 1Q 2014:

…………………………RMB per tonne (VAT-exclusive)
…………………….ASP in 1Q 14…..Price on 30 June 14……..Increase
TBBS………………..22,500…….………25,214……….……………...2,714
CBS………………….19,100.............22,650…….…..............3,550
MBTS……………… 16,300……….…...22,222….….….............5,922
Average…………..19,300.............23,362……..………….…….4,062

(Simple average is used instead of weighted average because capacity of individual accelerator is not available.)

Taking Nextinsight’s assumptions that 60% of rubber accelerators are MBT-based, and prices of non-MBT-based accelerators have not changed, the average increase of all accelerators is RMB 2,436.

Since ASP of all accelerators in 1Q 2014 was RMB 19,300, current ASP would be RMB 21,736 (=19,300 + 2,436), or round down to RMB 21,700.

This and the comparative figure of RMB 21,100 before the price cut in Dec 2011 are close, more so when higher current aniline price is taken into account.

[CityFarmer]

The company's debt increased further to approx RMB 360 mil.

http://infopub.sgx.com/FileOpen/CS_Discl...eID=305879

(not vested)

[Young Investor]

The company's debt increased further to approx RMB 360 mil.

http://infopub.sgx.com/FileOpen/CS_Discl...eID=305879

(not vested)

Just read Nextinsight article on Yanggu Huatai guidance that its 2Q profit may be 200% higher.
 
http://www.nextinsight.net/index.php/sto...ump-for-1h
 
According to 安信证券, Yanggu Huatai has capacity for 15,000 tonnes MBT and 30,000 accelerators. As Sunsine Chemical is much larger, it should do better.
But the increasing borrowings by Sunsine, as pointed out by Cityfarmer, is worrying. If Sunsine is producing more, should it borrow more? 

[Curiousparty]

Flaw of the average.


F(E(X)) is not the same as the E(F(X)).

Function of "Mean Value" is not the same as the Expected Value of the Function, where X is a random variable.

one simple example.

The chance that the retirement fund will survive is 100% if we use mean market return of 5% per annum for the rest of life time.

But the chance that the retirement fund will survive based on various market return scenarios ( mean = 5% but has certain standard deviation, say 2.5%) will be much lower.

http://rkbookreviews.wordpress.com/2010/...s-summary/

Portuser,
Do you mind sharing how current ASP of accelerator is derived?
Thanks!

Sfsh12
There is a typo error in my earlier post -- the estimated current accelerator ASP is around RMB 21,700 instead of RMB 21,900.

The derivation is shown below.

The current average price of the three MBT-based rubber accelerators is RMB 4,062 higher than in 1Q 2014:

…………………………RMB per tonne (VAT-exclusive)
…………………….ASP in 1Q 14…..Price on 30 June 14……..Increase
TBBS………………..22,500…….………25,214……….……………...2,714
CBS………………….19,100.............22,650…….…..............3,550
MBTS……………… 16,300……….…...22,222….….….............5,922
Average…………..19,300.............23,362……..………….…….4,062

(Simple average is used instead of weighted average because capacity of individual accelerator is not available.)

Taking Nextinsight’s assumptions that 60% of rubber accelerators are MBT-based, and prices of non-MBT-based accelerators have not changed, the average increase of all accelerators is RMB 2,436.

Since ASP of all accelerators in 1Q 2014 was RMB 19,300, current ASP would be RMB 21,736 (=19,300 + 2,436), or round down to RMB 21,700.

This and the comparative figure of RMB 21,100 before the price cut in Dec 2011 are close, more so when higher current aniline price is taken into account.