UOB Kay Hian Research Report March 26, 2025
Expect Robust Growth for China Sunsine Chemical as Overseas Sales and Volumes Soar
China Sunsine Chemical: Poised for Expansion with New Capacity Additions
China Sunsine Chemical (CSSC SP), the world’s largest producer of rubber accelerators, is set to benefit from rising overseas sales and strong domestic demand. The company’s strategic investments in new production facilities are expected to drive volume growth and cost savings, further solidifying its market leadership.
Volumes to Maintain Upward Trajectory
In 2024, Sunsine achieved record sales volumes of 214,094 tonnes, up 3% year-over-year (YoY), driven by an 11% YoY increase in international sales. Domestic sales saw a slight 1% YoY decline, but are expected to improve, supported by China’s targeted stimulus measures to aid consumption recovery.
China’s automobile sales grew 5% YoY to 31.4 million units in 2024, indicating robust domestic demand. Additionally, Chinese tyre makers are increasingly offshoring production to better access natural rubber, achieve cost savings, and gain trade advantages, which should further boost Sunsine’s international sales.
Stable Gross Margins Despite Price Declines
While average rubber accelerator prices and aniline prices have declined slightly, Sunsine’s gross margin is expected to remain stable at around 25% in the first half of 2025. This is supported by cost savings from the ramp-up of new Mercaptobenzothiazole (MBT) production, which began in the fourth quarter of 2024.
Sunsine’s Phase 1 (20,000 tonnes) of the 60,000-tonne MBT project has commenced commercial production, and Phase 2 (40,000 tonnes) is in the pipeline. As MBT is a key intermediate product for around 80% of all rubber accelerators, this expansion will enhance Sunsine’s cost savings and reduce reliance on external suppliers.
Attractive Valuation and Dividend Yield
Sunsine’s strong balance sheet, with a net cash position of Rmb2,074 million as of the end of 2024, provides ample room for the company to raise dividends and continue its share buyback program. The stock currently offers an attractive dividend yield of around 6%.
Trading at only 1.4x ex-cash 2025 price-to-earnings (P/E), Sunsine presents a compelling valuation proposition. UOB Kay Hian has raised its target price for the stock by 9% to S$0.63, maintaining a “Buy” recommendation.
Capacity Expansion and Cost Savings to Drive Future Growth
Sunsine’s ongoing capacity expansion projects, including the 60,000-tonne insoluble sulphur project and the 60,000-tonne MBT project, are expected to boost production and enhance cost efficiencies.
The company’s market leadership, with a 23% global market share and 35% market share in China, positions it well to capitalize on the growing demand for rubber chemicals both domestically and internationally.
Overall, China Sunsine Chemical’s strategic investments, strong balance sheet, and attractive valuation make it a compelling investment opportunity in the rubber chemicals sector.