INTERVIEW - China Sun Banks on Ethanol to Fuel Growth
Date: 21-Apr-06
Country: SINGAPORE
Author: Geraldine Chua
Beijing-based China Sun, whose corn starch and modified starch products accounted for 31 percent and 56 percent of its 2005 sales respectively, is confident it will win one of six ethanol fuel licences that China is expected to award this year.
"We believe we are in a good position to win the licence," Sun Guiji, China Sun's executive chairman and chief executive officer, told Reuters in an interview.
China now has four producers of ethanol fuel with a combined capacity of about 1 million tonnes a year -- far below the estimated potential demand of about 7 million tonnes per year, Sun said.
"There is huge demand for ethanol fuel," he added.
Sun said fuel would be a key growth area for China Sun, which has a market value of US$475 million, thanks to the country's efforts to reduce pollution and curb oil consumption.
China is the world's third-biggest car market after the US and Japan and the second-largest consumer of oil. The government has introduced measures to curb energy consumption, including raising levies on highly polluting cars with larger engines.
EXPANDING CAPACITY
China Sun also plans to boost its production capacity to drive earnings.
The company has five plants producing corn starch and modified starch in Shenyang and Tongliao -- the north-eastern regions of China where corn grows abundantly.
Chief Financial Officer Wilkins Poon said the company has a total production capacity of 416,000 tonnes of corn starch but aims to add another 300,000 tonnes this year.
The company is also building an ethanol plant in Shenyang, which is expected to have a production capacity of 100,000 tonnes when construction is completed in July, Poon said. This will be ramped up to 300,000 tonnes over the next 12 to 18 months.
To boost capacity further, Poon said that China Sun plans to buy at least two corn starch factories in China this year.
China Sun, which competes with Global Bio-Chem and Archer Daniels Midland Co. in China's corn starch market, has a market share of about 5 percent. Foreign players, including ADM, have more than half of China's overall corn starch market.
China Sun's share price has doubled so far this year, beating a 10 percent rise in Singapore's Straits Times Index
"I don't think that there's a lot of premium built in for China Sun to get the (ethanol fuel) licence because of the constant delays," Kim Eng Securities analyst Gregory Yap said, referring to market expectations that the new licences would be awarded earlier.
"I suspect that the stock price's rise is more because of the general re-rating of China stocks," said Yap, who forecasts China Sun's 2006 net profit at 313.2 million yuan.
"The first-quarter result should show that they are on track to hit that forecast," he added.
Last year, China Sun's net profit rose 41 percent to a record 241.9 million yuan (US$30.19 million), as sales increased 34 percent to 882.12 million yuan.
Profits this year are expected to rise about 30 percent to 315.6 million yuan, according to the average of two analysts polled by Reuters.
Sun declined to comment on the profit outlook ahead of the release of first-quarter earnings next month. Analysts said profits would be driven by the firm's capacity expansion plans.
(US$1=8.011 Yuan)
