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

“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,” they write.

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

“[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,” they write.

SEE:China Sunsine Chemical Holdings sees 'overall improvement' in 1Q21; expects 'relatively weaker demand' in months ahead

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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’s tyre manufacturing industry production to “remain robust” with the continued growth in the auto industry.

“We expect the export volume of China’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’s sales volume to grow 15% in FY2021,” they say.

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Ong and Tan have also raised their net profit forecast for FY2021 by 67% to RMB365 million as they believe that China Sunsine’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.

“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,” they add.

As at 12.22pm, shares in China Sunsine are trading 0.5 cent lower or 0.9% down at 55 cents.