On behalf of the Board of Directors of China Sunsine Chemical Holdings Ltd. (“China Sunsine” or “the Company”, together with its subsidiaries, collectively the “Group”), I am pleased to present the annual report for the financial year ended 31 December 2019 (“FY2019”).
Product prices rose significantly between the second half of 2017 and the first half of 2018 on short supply as a result of implementation of stringent regulations on environmental protection and nationwide enforcement. With its superior environmental protection measures, the Group achieved exceptional performance in FY2018. However, the Group had emphasised at that time that growth would not continue as the market in 2019 was expected to fall from its peak in 2018.
In the past year of 2019, the Group faced more complex and severe challenges from the external economic environment, such as the rise of global trade protectionism, heightened trade war between China and the U.S., the slowing down of China’s domestic economy, and the decline of auto sales. In the rubber chemicals industry, competition had intensified as some players had gradually resumed production after increasing their investment in technology and upgrading their facilities to meet the requirements for safe production. Coupled with the fact that raw material prices were hovering at low levels, the selling prices of our products were under pressure throughout 2019.
Despite such severe challenges in FY2019, the Group managed to outperform its peers. Guided by the strategy of “higher sales volume leads to higher production, which in turn stimulates even higher sales’ and the combined efforts in marketing, research and development, as well as environmentally friendly production and workplace safety, the Group achieved satisfactory results amid the challenging economic conditions.
Under such severe challenges in FY2019, the Group managed to outperform its peers. Guided by the strategy of “higher sales volume leads to higher production, which in turn stimulates even higher sales’ and the combined efforts in marketing, R&D, as well as environmental production and workplace safety, the Group achieved satisfactory results amid the challenging economic conditions.
The Group’s revenue in FY2019 fell 18% from the year before to RMB 2,691.7 million. Sales volume rose 11% from the preceding year, marking the 12th consecutive year of growth since our initial public offering in 2007. Net profit dropped 39% to RMB 388.9 million from FY2018.
To increase the liquidity of our shares and broaden our shareholders’ base, in November 2019, the Company undertook a share split of every one existing ordinary share (“Share”) into two shares (“Share Split”).
Based on the total number of shares after the Share Split, the Group’s earnings per share for FY2019 was RMB 39.72 cents; net assets per share as at end-2019 was RMB 262.56 cents. The Group’s financial position strengthened further with cash and bank deposits amounting to RMB 1,279.9 million, and no borrowings.
In 2019, the Group maintained its market leadership position as the world’s largest rubber accelerator producer and China’s largest insoluble sulphur producer. In November 2019, Shandong Sunsine Chemical Co., Ltd., a wholly-owned subsidiary of the Company, was once again named as “National Champion Manufacturing Enterprise” by the Ministry of Industry and Information Technology of China.
Mindful that technological innovation drives high-quality development, which in turn is necessitated by green production processes, the Group continued to intensify collaboration with research institutions to improve technologies and accelerate its transformation and upgrading.
At the same time, the Group invested more in environmental protection and workplace safety equipment, and further strengthened its standardised process management of equipment specification to ensure smooth production.
The Group added a 10,000-ton high-end accelerator TBBS production line (Phase I of the 30,000-ton fully automated TBBS project) in January 2019, and a 10,000-ton insoluble sulphur line at the end of 2018.
These two lines brought the Group’s total capacity to 172,000 tons, enabling sales volume to hit 167,455 tons in 2019, achieving a production and sales equilibrium and close to full utilization rate.
In May 2019, the Group established a wholly-owned subsidiary - Shandong Hengshun New Materials Co., Ltd, to acquire an approximately 680-mu land in Shanxian to develop a comprehensive chemical zone (“New Chemical Zone”), laying the foundation for the Group to grow even stronger.
Leveraging its reputation as a reliable and stable supplier of high-quality rubber chemical products, the Group has decided to develop the following three projects in 2020, to meet customers’ demands and increase our market share:
New car sales in China began to decline in 2018 after 28 consecutive years of growth. In 2019, it dropped another 8% from the previous year to 25.80 million units. The main reason for the slowing down is that after years of rapid growth, the market is now mature and is heading for lower growth.
According to a IMARC1 report, global tire market reached a volume of 3.2 billion units, a Compound Annual Growth Rate (CAGR) of around 4% between 2014 and 2019. Compared to new car sales, the tire industry is more stable as less than 30% tires are used in new cars, and the remaining 70% for the replacement market.
Due to the evolving situation of the COVID-19, starting from early 2020, many tire and rubber chemicals manufacturers (including us) in China had delayed the resumption of work after the Chinese New Year holiday. Some manufacturers are starting production gradually. However, with the spread of the pandemic outside China, many foreign tire companies have begun to suspend production. Although the Group’s capacity utilization rate is currently still at a high level, we expect that this wave of suspension will affect our subsequent production plan.
Amid the crisis, one must identify opportunities to wait in the wings. Although China and the rest of the world are being severely impacted by the outbreak, we believe the pandemic will end eventually and the economy will recover and grow. With the economy on the ebb, expanding our capacity and taking advantage of our strong financial and market position will enable the Group to grab market share for our products when the market recovers gradually, thus setting the foundation for long-term growth of the Group.
In consideration of the current uncertain economic condition and the anticipated capital expenditure for our expansion plans, the Board of Directors is recommending a final one tier tax-exempt dividend of 1 Singapore cent per share (equivalent to 2 Singapore cents before the Share Split) for FY2019. This proposal will be discussed and approved at the upcoming Annual General Meeting.
On behalf of the Board of Directors, I would like to thank our shareholders for their continued support and confidence in the Group over the years. I would also like to express my sincere appreciation to our customers, business associates, suppliers and the community for their long-standing and unwavering support. Last but not least, I thank my fellow board members, management teams and all staff for your professional counsel and tireless efforts in the past year.
Planning for rainy days and moving prudently are the principles that we have adhered to for decades. The steady growth and outstanding achievements of the past two decades have laid a sound foundation for our financial health. It will help us overcome the current difficulties and usher in the next round of recovery and prosperity. We are confident that, with the trust and support of our stakeholders, our Group will achieve longterm sustainable growth and enhance shareholders’ value.
Xu Cheng Qiu