SINGAPORE (Nov 21): Despite its share price having doubled year to date, China Sunsine Chemical appears deeply undervalued at eight times FY17 earnings versus 17 times for industry peers and 13.5 times for tyre makers, says Maybank Kim Eng.

In Monday’s unrated report for retail investor, analyst Simeon Ang says China Sunsine has risen to become one of the biggest producers of rubber additives, rubber accelerators with 18% global market share. It is also top in China when it comes to the supply of insoluble sulphur to top-tier tyre makers such as Bridgestone, Yokohama and Michelin.

Despite a temporary industry-wide production shutdown in 3Q17, China Sunsine’s 9M17 earnings jumped 35% to RMB209.3 million ($42.8 million), supported by 25.1% higher average selling prices and steady sales volumes.

Taking advantage of China’s recent push towards greater environmental protection, China Sunsine has benefitted from higher demand as authorities take enforcement action against competitors that fail to meet strict regulatory standards.

This has helped China Sunsine capture more market share and charge higher prices, reflected in the rapid sales volume growth of rubber accelerators from 108,973 tons in FY14 to 135,791 tons in FY16.

"With a client portfolio that includes two-thirds of the Global Top 75 tyre makers which accounts for more than 80% of revenue, demand from tyre makers have an outsized impact on China Sunsine. Tailwinds stem from China’s burgeoning vehicle population and unrelenting expansion in tyre manufacturing, as well as subsequent replacement demand," says Ang.

Shares in China Sunsine are up 1 cent at 94 cents or 9.4 times FY16 core earnings.