• China Sunsine reported 2H20 net profit of RMB136m (+66% h-o-h, +11% y-o-y). FY20 results was in line with our expectations, but ahead of consensus estimates.
• We see continued ASP uptrend, supported by robust downstream demand and higher raw material prices; this could support better profit spreads ahead.
• Reiterate ADD with a higher target price of S$0.61 (1.05x FY21F P/BV).

China Sunsine Reported Solid Set of 2H20 Results

• China Sunsine (SGX:QES) reported 2H20 net profit of RMB136m (+66% h-o-h, +11% y-o-y), riding the sequential ASP recovery in 2H which allowed the company to capture better profit spreads.
• China Sunsine's FY20 net profit came in at RMB219m (-40% y-o-y), in line with our expectation (102% of our forecast) but above Bloomberg consensus’ (108%).

Downstream Demand Recovery Continues

• We believe downstream demand will remain strong in CY21F. We expect China’s tyre manufacturing industry (Dec: -1% m-o-m, +14% y-o-y) to remain robust with the continued growth in the auto industry (China Association of Automobile Manufacturers expects new vehicle sales in China to grow 4% in 2021F).
• We expect the export volume of China’s rubber accelerators (Dec: +13% m-o-m, +24% y-o-y) to also stay strong with the resumption of economic activities in the overseas markets.
• We understand that China Sunsine’s 20kt rubber accelerator capacity added in mid-2020 has been well absorbed, with growing utilisation rate, and forecast its sales volume will grow 13% in FY21F.

ASPs Trending Higher

• Post a two-year downtrend, average prices in the rubber accelerator and anti-oxidant industries had recovered 40% and 38% respectively since Sep 2020 to date. We see further upside in the coming months, supported by
  1. robust downstream demand, and
  2. rise in raw material costs.
• The price of aniline, a key raw lag of 1-2 months for China Sunsine to recognise higher selling prices as its pricing contracts are mostly negotiated on monthly/quarterly basis; hence we expect further uptick in its ASPs in 1H21F.
• We see stronger profit spread ahead, and forecast China Sunsine's FY21F net profit of RMB300m (+37%).

Maintain ADD on China Sunsine With a Higher Target Price of S$0.61

• Maintain ADD. We raise our FY21-22F earnings per share forecasts by 4.8%-6.1% to reflect higher ASP assumptions. Our target price rises to S$0.61, now based on 1.05x FY21F P/BV (0.5 s.d. above its 10-year historical mean) vs 0.92x (mean) previously.
• Key risks include--> worse than-expected petition and resurgence of COVID-19 cases, impacting demand.

Source: CGS-CIMB Research - 26 Feb 2021