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China Sunsine: broker reports may have affected share price; stock slides 22.8% in 4 sessions

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China Sunsine Chemical Holdings said on Wednesday morning that it is not aware of any information not previously announced that could have caused the wide fluctuation in its share price over the last one week.

CHINA Sunsine Chemical Holdings said on Wednesday morning that it is not aware of any information not previously announced that could have caused the wide fluctuation in its share price over the last one week.

Shares of the Chinese speciality rubber chemicals manufacturer have dived 22.8 per cent since it reported second-quarter earnings on Aug 7, closing at S$1.15 on Tuesday. Short-selling volume jumped over that period, ranging from 7.3 to 15.8 per cent of all trades each day. 

The group noted that "various reports issued by some stock broking firms" might have impacted its share price, though it did not name any specific reports.

On Aug 7, CGS-CIMB downgraded China Sunsine from "add" to "hold", reducing its target price from S$1.87 to S$1.41, based on a forward 2019 price-to-earnings ratio of 7.7 times instead of 9.8 times previously.

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Analyst Colin Tan speculated that the "good times may be over" after a 43 per cent share price rally since January.

He wrote: "Normalising ASPs (average selling prices) could hit profit margins going forward. While rubber accelerators (RAs) are still in tight supply in China, prices of RAs have been coming off since end-June, allegedly due to slowing downstream demand for tyres and possibly for the non-tyre rubber products as well.

"According to an industry news source on rubber tyres in China, production has reportedly stagnated for many large tyre enterprises in Shandong province amid an overcapacity situation."

Although the group's second-quarter net profit of 240 million yuan (S$48 million) exceeded expectations, that was helped by 48 million yuan in tax credits, Mr Tan added.

Mr Tan noted that the group remains in a net cash position with zero borrowings, but cautioned: "Based on past indication from management that it would reserve cash for future expansion and as a buffer against any shock from potential economic downturns, the prospects of special dividends would be dim, in our view."

China Sunsine said on Wednesday: "Our group is operating normally, and we remain positive of our performance in the next 12 months. The board also remains committed to implement our dividend policy as announced on June 12, 2017 for the 2018 financial year."

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