Broker: UOB Kay Hian Date of Report: 26 March 2025

China Sunsine Chemical Poised for Growth with Volumes and Overseas Sales

Expect Volumes and Overseas Sales to Drive Growth

China Sunsine Chemical’s (Sunsine) sales volumes are expected to maintain an upward trajectory, driven by China’s stimulus measures and rising tyre exports. While average selling prices (ASPs) may decline on lower raw material prices, the company anticipates stable gross margins thanks to its market leadership and added Mercaptobenzothiazole (MBT) production.

Domestic Demand Recovery and Booming Exports

In 2024, Sunsine achieved a record sales volume of 214,094 tonnes (+3% year-on-year), driven by an 11% year-on-year increase in international sales volume on robust demand from Southeast Asia-based tyre manufacturers. Looking ahead, the company expects domestic sales to improve, supported by China’s targeted stimulus measures to aid consumption recovery. China’s automobile sales grew 5% year-on-year to 31.4 million units in 2024, demonstrating strong domestic demand.
As the world’s largest tyre producer accounting for over 40% of global output, China’s rubber tyre exports grew 3.3% year-on-year to 1.38 million tonnes in January-February 2025, suggesting continued growth in international sales volume for Sunsine. Increased adoption of electric vehicles could also boost new vehicle sales, further driving demand for the company’s products.

Stable Gross Margins Despite ASP and Raw Material Price Decline

While average rubber accelerator ASPs in January-March 2025 were slightly lower than in Q4 2024, and average aniline prices dropped by around 6%, Sunsine expects gross margin to remain stable year-on-year at around 25% in the first half of 2025. This is supported by cost savings from the ramp-up of new MBT production in Q4 2024, which may partially offset the intensified market competition.
The company’s Phase 1 (20,000 tonnes) of its 60,000-tonne MBT project began commercial production in Q4 2024, while Phase 2 (40,000 tonnes) is in the pipeline. As MBT is a key intermediary product to produce about 80% of all types of rubber accelerators, this will enhance cost savings and reduce reliance on external suppliers.

Earnings Revision and Valuation

The analyst has raised their 2025 and 2026 earnings estimates by 9% and 6% respectively, after factoring in better-than-expected gross margins from Sunsine’s MBT capacity expansion, which improves self-sufficiency. Net margins are also raised 1-2 percentage points on lower R&D expenses.
The stock is maintained at a “Buy” rating with a 9% higher target price of S$0.63, pegged to an unchanged price-to-earnings (PE) multiple of 7.5x 2025 earnings, or 1 standard deviation above the mean PE. Sunsine trades at an attractive valuation of 1.4x ex-cash 2025 forward PE.

Key Catalysts and Risks

Key share price catalysts include the commencement of new manufacturing capacities, higher ASPs for rubber chemicals, and higher-than-expected utilization rates. Risks include lower-than-expected sales volumes, margin pressures, and delays in capacity expansion projects.