Date of Report: 3 October 2024
Broker: UOB Kay Hian
Market Outlook and Demand Recovery
China Sunsine Chemical is positioned to benefit from an anticipated improvement in demand and average selling prices (ASPs) due to China’s latest stimulus measures, which have positively impacted investor sentiment and may enhance consumer confidence.
Sales Volume Growth
In the first half of 2024, China Sunsine reported stronger rubber chemical sales volume, achieving a 6% year-on-year increase. This growth was supported by improved capacity utilization rates among tire manufacturers in Southeast Asia, although it was partially offset by lower domestic demand.
Impact of Electric Vehicle Sales
The company also experienced a boost in sales volume, correlating with a 6% year-on-year increase in auto sales in China, alongside a notable 32% surge in electric vehicle sales during the same period. This trend suggests a favorable market environment for China Sunsine as tire manufacturers ramp up production.
Strong Financial Position
China Sunsine maintains a healthy balance sheet, providing an attractive dividend yield of approximately 5%. The company has a strong cash position of Rmb1,750.7 million, with no outstanding debt, equating to Rmb1.82 per share (approximately S$0.33 per share) or around 70% of its market capitalization.
Investment Recommendation and Target Price
UOB Kay Hian maintains a “BUY” recommendation for China Sunsine, with a target price of S$0.46. This valuation is based on a price-to-earnings (PE) multiple of 6x for 2024, aligned with the company’s long-term average.
Key Catalysts for Growth
Key events that could drive China Sunsine’s share price higher include:
- The commencement of production for new capacities.
- Increases in ASPs for rubber chemicals.
- Higher-than-expected utilization rates, supporting overall sales growth.
