Results Update (Updated 15 September 2021)
Strong fundamentals to buffer upcoming price tailwinds
- Sunsine’s improving profit margins were in line with the buoyant rubber chemicals sector.
- Average selling price (ASP) could fall in 2H21 as macro conditions will not be as favourable as in 1H21.
- Capacity ramp-up in insoluble sulphur and anti-oxidant with a respective 30,000 tonnes each will offset the selling price correction.
- We maintain OUTPERFORM with an unchanged TP of $0.68 as we expect the increase in sales volume in FY22 and FY23 to offset the downswing in ASPs.
Most commodity prices reached their peaks in April/May and have corrected moderately. Prices of feedstocks such as aluminium and coal continued to edge up to new highs, while iron ore entered the bear cycle. However, most of the raw materials remained elevated, and rubber chemicals are one of them.
As of July 2021, rubber chemicals prices have kept the upward momentum with growth of 30% to 40% YoY, extending the surge in 2Q21. Both strong demand and abundant monetary liquidity upheld the price appreciation.
1H21 GPM and NPM regained the levels above 30% and 15% respectively, which was last seen in 2Q19. The jump in both average selling price and sales volumes were in line with the buoyant rubber chemicals market.
Valuation & Action
We maintain our OUTPERFORM rating with a higher target price of $$0.68 as we expect the increase in sales volume in FY22 and FY23 to offset the downswing in ASPs.
We expect the macro environment in 2H21 to be not as favourable as in 1H21. China has tightened credit facilities since 4Q20, while the US could start tapering QE later this year. Therefore, the commodity bull cycle could peak in 3Q/4Q21. Meanwhile, the 2022 Beijing Winter Olympics will be held in early February. Investors should be familiar with the seasonal winter haze in the northern part of China. It is highly likely that authorities will release a suspension work order similar to what it did before and during 2008 Beijing Summer Olympics to plants located in Shandong and Heibei province. Therefore, it is unknown whether 4Q21 production will be affected.