China Sunsine Chemical Holdings (CSH) was recently selected by Forbes China to be amongst the ‘Best 200 Companies under Rmb1b in 2008′. CSH made it to the list primarily based on its strong earnings record. From FY04 to FY07, revenue and profit grew at a CAGR of 37.5% and 62.8% respectively.

Listed in July 2007 at $0.39 apiece, CSH is currently the largest rubber accelerator manufacturer in the PRC and ranks second in the world, serving the global top 10 tyre manufacturers such as Bridgestone and Michelin. For the uninitiated, rubber accelerators are chemicals added during the production of rubber products to accelerate the curing process of rubber.

What sets CSH apart from competitors is its strategy of focusing on preferred customers, especially in the automotive industry and its aggressive pursuit of increasing its market share. It also helps that it has a strong business model helmed by chairman and general manager Xu Cheng Qiu, who has more than 30 years experience in the rubber chemical industry.

Despite an impressive set of credentials, CSH has seen its share price on a downward spiral since its IPO last year. Currently, its share price is hovering around $0.25 at a FY07 P/E of 8 times. No dividend has been declared so far.

STEADY PROFIT GROWTH
Year on year, FY07 profit surged 20% on strong demand for rubber accelerators especially in the PRC market. However, gross margin fell from 25.7% in 4Q06 to 18.8% in 4Q07 due to rising raw material costs and a reduction in PRC export tax rebate from 13% to 5% with effect from July last year. Quarter on quarter, gross margins has stabilised from 3Q07 to 4Q07 as CSH raised the average selling price by 2.7% in 3Q07 followed by a further 0.5% in 4Q07, demonstrating its ability to pass on costs to customers.

ON ITS WAY TO BEING A GLOBAL LEADER
Despite its success, CSH is not resting on its laurels. Koh Choon Kong, chief financial officer of CSH, said in an interview that the company aims to maintain its cost leadership while at the same time enlarging its market share. The target is to be the world’s largest by year-end. Koh reckons that CSH should surpass the world leader, believed to be Lanxess, a German company, which has a capacity of 45k tons. As at end FY07, CSH’s capacity of rubber accelerators was 39k tons and this is targeted to increase to 50k tons in FY08.

Apart from rubber accelerators, CSH also manufactures insoluble sulphur (IS), which commands a higher gross margin. The newly completed IS plant, which has a capacity of 5,000 tons will be upgraded by end of FY08 to 10,000 tons. This will take up approximately Rmb10m out of a budgeted capex of between Rmb80m to 100m for FY08. Another Rmb30m will be allocated for upgrades of both its waste-water treatment plant and waste-gas recycling facility in its bid to be environmentally friendly. Koh said that up to 99.5% of sulphur emitted is recycled as a raw material.

Besides growing organically, the company is also looking at merger and acquisition activities. The industry in PRC is currently fragmented. Small players, which may not be cost efficient, are potential targets.

Given its aggressive expansion plans, CSH will tap on the Rmb220m net IPO proceeds as well as its strong cash flow generating ability for funding. As at 31 Dec-07, Co had a cash balance of Rmb113.2m.