China Sunsine Chemical - CGS-CIMB Research 2022-11-16: Weaker Demand Likely To Compress Margins

China Sunsine Chemical - Weaker Demand Likely To Compress Margins

  • China Sunsine (SGX:QES)’s 3Q22 core net profit of RMB128m (-45% q-o-q, +28% y-o-y) came in above our expectations, with 9M22 net profit forming 88% of our FY22F forecast despite a challenging macro environment. The beat was due to stronger-than-expected sales volumes (-6% y-o-y), as we had projected a steeper decline in view of a slowdown in China’s economy.
  • 3Q22 gross profit margin saw some contraction on a q-o-q basis to 27.2%, but was stronger on a y-o-y basis. Stronger y-o-y profits were also helped by a lower effective tax rate as China Sunsine was awarded the “High-Tech Enterprise” status in May 2022, which entitles it to a concessionary tax rate of 15% for three years.
  • According to, a Chinese commodity market information service provider, both rubber accelerator and aniline prices recorded similar m-o-m increases in Sep/Oct of ~20%. Given that China Sunsine typically locks in quarterly pricing for its rubber accelerator products with major customers while taking spot prices for raw materials, we see narrower profit spread in 4Q22F and forecast gross profit margin to decline further on a sequential basis to ~25%.
  • With global macro conditions deteriorating further, we believe rubber accelerator sales volumes will be negatively impacted as consumers dial back discretionary spending such as automobiles and we still expect FY23-24F sales volumes to be lower than FY22F levels on export weakness. We hence lower our FY23-24 EPS forecast for China Sunsine by 4.1-4.5%.
  • Our target price for China Sunsine is lowered to S$0.60, now pegged to a lower 0.7x FY23F P/BV (0.5 standard deviation below 10-year historical mean) from 0.9x. Reiterate ADD rating on China Sunsine for its attractive valuations (1.9x FY23F P/E ex-cash) and strong free cash flow generation track record.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | 2022-11-16
SGX Stock Analyst Report ADD MAINTAIN ADD 0.60 DOWN 0.700

Previous report by CGS-CIMB:
2022-08-15 China Sunsine Chemical - A Record Half Despite A Challenging Backdrop

Relevant links:
China Sunsine Analyst Report,
China Sunsine Target Price,

China Sunsine Share Price History,
China Sunsine Announcements,
China Sunsine Dividends/ Corp Actions,
China Sunsine News Articles


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