2018 is coming to an end.
And investors would hope to put the year behind quickly due to the stock market volatility experienced in the last few months. However, due to the recent market pullback, many shares are selling at cheap prices. Let’s look at one such company in this second part of a three-part series of articles. The first article, which also discusses a cheap share, can be found here. The third article will be introducing another cheap share.
Introduction to Company #2
China Sunsine Chemical Holdings Ltd (SGX: CH8) is a leading speciality rubber chemicals producer. It also ranks as the world’s largest producer of rubber accelerators, and China’s largest producer of insoluble sulphur. The company serves more than 65% of the top 75 tire makers in the world, including brands such as Bridgestone, Michelin, Goodyear, and Pirelli.
Good track record and future growth potential
China Sunsine has produced impressive growth in both its top-line and bottom-line. From 2013 to 2017, revenue climbed by 12.7% per year while net profit grew 45.2% annually because of an expansion in the company’s net profit margin from 4.5% to 12.5%. To know more about the company’s historical financials, you can head here.
China Sunsine ended 2017 with a return of equity (ROE) of 22% with no debt. The ROE figure reveals how efficient a firm’s management is in turning every dollar of shareholders’ capital into profit. In my books, any ROE above 15% is good.
The company is enjoying a number of tailwinds. For one, China Sunsine’s annual production capacity could be boosted by 13% to 172,000 tonnes of rubber chemicals in the near future. The Chinese government is also considering a tax cut to revive China’s slowing automotive market, which could increase China Sunsine’s average selling price of rubber chemicals due to stronger demand from tyre makers.
Why it’s cheap
China Sunsine’s share price ended Tuesday at S$1.30. At that share price, the company was valued at just four times trailing earnings. This is cheap considering the company had grown its earnings at a significantly higher annual rate than 4% over the past few years.
The third cheap share will be introduced soon, so stay tuned! [Editor’s note: The third part of the series has been published and it can be found here.]
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.