CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have maintained &ldquo add&rdquo on China Sunsine Chemical Holdings with a higher target price of 66 cents from 61 cents previously, following China Sunsine&rsquo s &ldquo positive 1Q business update&rdquo on April 29.

 

&ldquo Our target price rises to 66 cents, still based on 1.05 times FY2021 price-to-book (P/BV) or 0.5 standard deviation (s.d.) above its 10-year historical mean,&rdquo they write.

 

The company&rsquo s net profit of RMB125 million ($25.8 million) for the 1QFY2021 ended March, surged 274% y-o-y, surpassing the analysts&rsquo expectations at 42% of their FY2021 forecast.

 

&ldquo [The] key surprise was [the] stronger-than-expected gross profit margin (GPM) of 31.6%, as Sunsine successfully passed on higher raw material costs to customers,&rdquo they write.

 

As such, the analysts have upped their earnings per share (EPS) forecasts for FY2021 to FY2023 by 1.2% to 22.0% to reflect higher GPM assumptions.

 

Furthermore, Ong and Tan believe that downstream demand will remain strong in 2021 as they expect China&rsquo s tyre manufacturing industry production to &ldquo remain robust&rdquo with the continued growth in the auto industry.

 

&ldquo We expect the export volume of China&rsquo s rubber accelerators (1QFY2021: +4% q-o-q, +11% y-o-y) to also stay strong with the resumption of economic activities in the overseas markets. Overall, we forecast Sunsine&rsquo s sales volume to grow 15% in FY2021,&rdquo they say.

 

Ong and Tan have also raised their net profit forecast for FY2021 by 67% to RMB365 million as they believe that China Sunsine&rsquo s healthy profit spread for the company could be sustained for the rest of the FY2021 despite a slight retreat on chemical rubber prices in April.

 

&ldquo We expect rubber accelerator prices to stabilise at current levels, supported by robust downstream demand, and elevated raw material costs. Price of aniline, a key raw material, has surged 120% y-o-y riding on higher oil prices,&rdquo they add.