|
From a loss-making state-owned enterprise back in 1998, China Sunsine has emerged a decade later after a management buyout by its employees to become the biggest global manufacturer of rubber accelerator products, overtaking long established players such the German-based Lanxess Corporation in terms of production capacity.
Accelerators are used during the vulcanisation or curing process in which natural or synthetic rubber becomes hardened as well as more durable and resistant to chemicals and high temperatures. About 70% of the world’s rubber goes into tyres while the remaining are used for non-tyre applications such as rubber boots, seals, belts and hoses.
 The company, which production facilities are located in Shanxian in Shandong province currently counts among its 600 domestic and global customers, the top 10 tyre makers in the world such as Bridgestone, Michelin, Yokohama, Pirelli and Goodyear as well as nine out of the top 10 tyre manufacturers in China. Its fast tracked growth has propelled the company into one of Asia’s top 200 small and mid-sized enterprises, as ranked by Forbes magazine in 2008.
China Sunsine's compounded annual growth rate (CAGR) for sales has averaged 35.3% between FY2004 and FY2008, while the CAGR for net profit was 57% for the same period. Net profit for the first half of 2009 was RMB 36.4 million on the back of sales of RMB311.8 million.
It has a 19% of the market share on the mainland, which accounts for about a quarter of the world's consumption of rubber. While China Sunsine has an estimated 8% of the global pie based on the volume of its accelerators sold directly to end-users – about 30,600 tonnes in 2008 – the group has set its sights on widening the gap between itself and its main competitors with the goal of raising its global market share to 15%-20% by 2011-12, said the group's chief financial officer, Mr Koh Choon Kong.
"If you have 15% to 20% market share of the essential raw material for rubber production, you will find yourself in a more competitive position since the manufacturers of rubber products will rely on you more than you on them. Pricing and margins will be more stable as you will be a better bargaining position with both suppliers and customers."
Mr Koh added, "We have become more competitive and been gaining marker share as evident by the increase in our sales volumes in the first half – 20,000 tonnes compared to 17,000 tonnes in 1H08 – while still sustaining our margins despite global rubber consumption falling by 5% in a recession year due to a worldwide decline in vehicle sales in the US, Europe and Japan."
"Despite the global slowdown, the second quarter this year has also seen record volumes for us and we should hit 40,000 tonnes by the year end with orders from new customers such as Continental as well as existing customers such as Bridgestone who are looking for greater quantity for their plants in China and elsewhere."
To meet these longer-term goals, China Sunsine has been ramping up its annual production capacity for accelerator products from 39,000 tonnes to 50,000 tonnes with a new facility, which started commercial production in August, and which is also capable of producing new products such as 5,000 tonnes/year of insoluble sulphur and 5,000 tonnes/year of the anti-oxidant product, known in the industry as TMQ.
"With the new plant, we will not only be raising our capacity but also pushing out new products such as insoluble sulphur and TMQ – both which are also used in curing rubber to enhance their physical qualities – to give us a an even greater competitive advantage as most of our competitors do not offer such a wide range of products."
"With the higher capacity and ability to churn out bigger volumes, we are able to reduce our unit cost through economies of scale and hence able to provide even more competitive pricing. Our major customers such as Bridgestone, Goodyear and Michelin which are all setting up new tyre plants or raising their current plant capacities in China can also be assured of their supply of accelerator products when they ramp up production, which would not be possible five years ago when we had less capacity," said Mr Koh.
The increase in capacity also gives China Sunsine the scope and confidence to expand its reach to new markets through existing or new customers, especially when rubber accelerator products are usually in powder or granular form and do not incurred too much extra cost in transportation.
For example prior to October 2007, the company only supplied to Pirelli in the China market, but has since extended its sales to the latter's plants in Turkey and Brazil. Similarly, China Sunsine has also started to supply to Bridgestone in Italy and Argentina while Goodyear has placed orders for its plants in Brazil, Poland and other locations. |
 |
 |
"We still see further room for growth in terms of reaching out to new customers and new markets such as Europe, South Africa, North and South America where our penetration is still low. For 2009, the profit margin is not of great concern to us. Our overriding strategy is to acquire market share which is more important in the longer run," said Mr Koh who added that the margin for accelerators products has over the years remained fairly steady at about 20%.
While the group has generally relied on organic growth in its short history, Mr Koh said its management does not rule out opportunities for mergers and acquisitions (M&A) to further fast track its growth as it has a strong cash pile of RMB 286 million as of end-June, with notes receivable amounting to another RMB 30 million.
China Sunsine operates on a cost-plus model, which enables it to pass on any raw material price increases – which accounts to 70%-80% of its production costs – to its customers and is hence able to maintain a reasonable gross profit margin. It does not tie itself to long-term contracts with both its suppliers and customers, thus providing flexibility in its product pricing.
As Mr Koh notes, "Rubber accelerators used in rubber production probably accounts for 1% of a tyre manufacturer's costs, which is why such price increases are not too sensitive to their operations."
The Asia Pacific region currently makes up about 87% of China Sunsine's sales (55% China; 32% to rest of Asia). One Asian market, however which China Sunsine hopes to see greater penetration is India where the company has appointed in June this year, the Malaney Group, a leading distributor of rubber chemicals as its distributor in India, Pakistan and Sri Lanka.
"It's still early days but we should be able to see more meaningful contributions from the Indian subcontinent from next year onwards The same could also be said of our new products such as insoluble sulphur and antioxidant," said Mr Koh who added that China Sunsine is now also looking to open new channels in the non-tyre industries. Its new facility, for instance also produces the accelerator, MBTS, which is used by pharmaceutical companies to make intermediate products used in the manufacture of antibiotics.
Or in short, its current growth trajectory will be based on three channels: New products, new customers and new markets.
|
Up to-date current Financial News for Investors
