UOB Kay Hian Research Report March 26, 2025
Expect Volumes and Overseas Sales to Drive Growth for China Sunsine Chemical
Key Highlights:
Sunsine’s sales volumes are expected to maintain an upward trajectory, driven by China’s stimulus measures and rising tyre exports
While average ASPs may decline on lower raw material prices, stable gross margins are anticipated thanks to Sunsine’s market leadership and added MBT production
The recent 20% dividend increase for 2024 is a strong signal of confidence
Sunsine trades at an attractive 1.4x ex-cash 2025F PE and offers a 6% yield, leading UOB Kay Hian to maintain a BUY rating with a raised target price of S$0.63
Volumes to Maintain Upward Trend
In 2024, Sunsine achieved a record sales volume of 214,094 tonnes (+3% YoY), driven by an 11% YoY increase in international sales volume on robust demand from Southeast Asia-based tyre manufacturers
Domestic sales volume saw a slight 1% YoY decline, but is expected to improve, supported by China’s targeted stimulus measures to aid consumption recovery
China’s automobile sales grew 5% YoY to 31.4m units in 2024, demonstrating strong domestic demand
Chinese Tyre Makers Expand Overseas Production
As the world’s largest tyre producer accounting for >40% of global output, China’s rubber tyre exports grew 3.3% YoY to 1.38m tonnes in Jan-Feb 2025
This suggests continued growth in international sales volume for Sunsine, as Chinese tyre makers continue to offshore production for better access to natural rubber, cost savings, and trade advantages
Increased adoption of electric vehicles could also boost new vehicle sales and drive demand for Sunsine’s products
Stable Gross Margins Despite ASP and Raw Material Price Decline
Average rubber accelerator ASPs in Jan-Mar 2025 were slightly lower than in 4Q 2024, while average aniline prices dropped by around 6%
Gross margin is expected to remain stable YoY at around 25% in 1H 2025, supported by cost savings from the ramp-up of new MBT production in 4Q 2024
Sunsine’s Phase 1 (20,000 tonnes) of its 60,000-tonne MBT project began commercial production in 4Q 2024, while Phase 2 (40,000 tonnes) is in the pipeline
2024 Review and Earnings Revision
Sunsine reported 2024 earnings of Rmb424m (+14% YoY), beating UOB Kay Hian’s and consensus forecast by 12%/14% respectively
The beat was due to lower-than-expected R&D expenses and foreign currency gains
Revenue of Rmb3.5b (+1% YoY) matched UOB Kay Hian’s forecast, driven by record-high sales volume (+3% YoY), offset by a 2% YoY decline in ASPs
Gross margin expanded to 24.2% (+1.3ppt YoY)
UOB Kay Hian has raised its 2025/26 earnings estimates by 9%/6% respectively, after factoring in better-than-expected gross margins from Sunsine’s MBT capacity expansion
Attractive Dividend Yield of Around 6%
Sunsine’s strong cash position of Rmb2,074m (+23% YoY) as of end-2024 provides ample room for potential dividend increases and share buybacks
This translates to Rmb2.18/share (S$0.40/share) or around 77% of its market cap, offering an attractive yield of around 6%
Maintaining Market Leadership
Sunsine maintained its position as the world’s largest accelerator producer, with a stable market share of 23% in 2024 and 35% in China
With the largest rubber accelerator capacity of 117,000 tonnes, Sunsine is well-positioned to expand its customer base of over 1,000 clients across >40 countries, including more than 75% of the top 75 global tyre makers
Pipeline Projects to Boost Production and Cost Savings
Phase 2 (30,000 tonnes) of a 60,000-tonne capacity insoluble sulphur project is set to begin trial runs in 1H 2025
Phase 2 (40,000 tonnes) of the 60,000-tonne MBT project is also in the pipeline, which will enhance cost savings and reduce reliance on external suppliers
Valuation and Recommendation
UOB Kay Hian maintains a BUY rating on Sunsine with a 9% higher target price of S$0.63, pegged to an unchanged PE multiple of 7.5x 2025F earnings
The stock trades at an attractive valuation of 1.4x ex-cash 2025F PE

Expect Volumes and Overseas Sales to Drive Growth for China Sunsine Chemical

Volumes to Maintain Upward Trend

• In 2024, Sunsine achieved a record sales volume of 214,094 tonnes (+3% YoY), driven by an 11% YoY increase in international sales volume on robust demand from Southeast Asia-based tyre manufacturers
• Domestic sales volume saw a slight 1% YoY decline, but is expected to improve, supported by China’s targeted stimulus measures to aid consumption recovery
• China’s automobile sales grew 5% YoY to 31.4m units in 2024, demonstrating strong domestic demand

Chinese Tyre Makers Expand Overseas Production

• As the world’s largest tyre producer accounting for >40% of global output, China’s rubber tyre exports grew 3.3% YoY to 1.38m tonnes in Jan-Feb 2025
• This suggests continued growth in international sales volume for Sunsine, as Chinese tyre makers continue to offshore production for better access to natural rubber, cost savings, and trade advantages
• Increased adoption of electric vehicles could also boost new vehicle sales and drive demand for Sunsine’s products

Stable Gross Margins Despite ASP and Raw Material Price Decline

• Average rubber accelerator ASPs in Jan-Mar 2025 were slightly lower than in 4Q 2024, while average aniline prices dropped by around 6%
• Gross margin is expected to remain stable YoY at around 25% in 1H 2025, supported by cost savings from the ramp-up of new MBT production in 4Q 2024
• Sunsine’s Phase 1 (20,000 tonnes) of its 60,000-tonne MBT project began commercial production in 4Q 2024, while Phase 2 (40,000 tonnes) is in the pipeline

2024 Review and Earnings Revision

• Sunsine reported 2024 earnings of Rmb424m (+14% YoY), beating UOB Kay Hian’s and consensus forecast by 12%/14% respectively
• The beat was due to lower-than-expected R&D expenses and foreign currency gains
• Revenue of Rmb3.5b (+1% YoY) matched UOB Kay Hian’s forecast, driven by record-high sales volume (+3% YoY), offset by a 2% YoY decline in ASPs
• Gross margin expanded to 24.2% (+1.3ppt YoY)
• UOB Kay Hian has raised its 2025/26 earnings estimates by 9%/6% respectively, after factoring in better-than-expected gross margins from Sunsine’s MBT capacity expansion

Attractive Dividend Yield of Around 6%

• Sunsine’s strong cash position of Rmb2,074m (+23% YoY) as of end-2024 provides ample room for potential dividend increases and share buybacks
• This translates to Rmb2.18/share (S\$0.40/share) or around 77% of its market cap, offering an attractive yield of around 6%

Maintaining Market Leadership

• Sunsine maintained its position as the world’s largest accelerator producer, with a stable market share of 23% in 2024 and 35% in China
• With the largest rubber accelerator capacity of 117,000 tonnes, Sunsine is well-positioned to expand its customer base of over 1,000 clients across >40 countries, including more than 75% of the top 75 global tyre makers

Pipeline Projects to Boost Production and Cost Savings

• Phase 2 (30,000 tonnes) of a 60,000-tonne capacity insoluble sulphur project is set to begin trial runs in 1H 2025
• Phase 2 (40,000 tonnes) of the 60,000-tonne MBT project is also in the pipeline, which will enhance cost savings and reduce reliance on external suppliers

Valuation and Recommendation

• UOB Kay Hian maintains a BUY rating on Sunsine with a 9% higher target price of S\$0.63, pegged to an unchanged PE multiple of 7.5x 2025F earnings
• The stock trades at an attractive valuation of 1.4x ex-cash 2025F PE