China SunSine

China SunSine: AmFraser initaites coverage with Buy call and $0.69 TP. One of the largest in the world in terms of capacity, this Chinese rubber chemical additives maker is now benefiting big time from its courage to treat environmental protection seriously during a time when enforcement was lax. The house faith in this counter is not guided by blind bravado. Drew conclusion after making observations on its: 1) customers; 2) receivables; 3) reported sales, volume, ASPs and market prices; 4) PPE trend; 5) global market share; 6) mentions in other reports; 7) dividend track record and cash level. The tight RA supply in 2014 was caused by the shutting down of a number of factories as their waste discharge have failed to meet environmental standards. Strict enforcement is likely to remain under the current regime in Beijing, with even stricter environment standards and laws set to kick-in come FY15. The booming automotive market will also continue to drive demand for tires and therefore, rubber chemicals. Net profit for FY14F is expected to hit RMB216m from RMB77m in 2013, fuelled by a combination of higher ASPs, operating leverage and lower raw material costs. Also expect FY15F earnings to grow 8% to RMB234m, with the assumptions of 1) 7% fall in overall ASP, being offset by 2) higher capacity and sales volume, and 3) expected cost savings of RMB30m from its newly built heating plant but higher raw materials costs. Sunsine is currently trading at 4.3x FY15F P/E at a forward CAGR of 8% between FY14F-FY16F. Given its unprecedentedly strong prospects, argue that Sunsine should at the very least be trading at the top of its historical trading P/E of 6-7x. We therefore ascribe a target price of S$0.69 to Sunsine, which is pegged at 7x FY15F P/E. Capital appreciation aside, also believe a dividend hike to c.1.4 Scts from 1 Sct is on the cards and we believe such a move will greatly boost investor confidence in this counter.