Thu, Aug 30, 2012 - Page 14 News List

Second half looking rosy for Cheng Shin: analysts

By Kevin Chen  /  Staff reporter

Tire maker Cheng Shin Rubber Industry Co (正新橡膠) could see its gross margin increase in the second half of this year after its second-quarter gross margin reached a two-year high, analysts said yesterday.

With the company entering its peak season in the third quarter and demand from China looking strong, Cheng Shin is likely to gain more market share as it is stepping up capacity expansion, Fubon Securities Investment Services Co (富邦投顧) analyst Will Hsieh (謝文凱) said in a note.

The analyst’s comment came after the Yuanlin (員林), Changhua County-based company released its first-half financial results late on Tuesday, which showed its gross margin widened from 20.46 percent in the first quarter to 24.28 percent in the second quarter. That compared with 18.96 percent in the same period last year.

Hsieh said in the note that Cheng Shin’s second-quarter gross margin of 24.28 percent was better than his estimate of 21.4 percent and he attributed the increase to the company’s use of low-cost raw material inventories during the quarter.

“We expect Cheng Shin’s gross margin to continue improving in coming quarters because of weak raw material prices,” Hsieh wrote.

The company, which produces and markets its tires under the brands “Cheng Shin” and “Maxxis,” and its local peers, such as Kenda Rubber Industrial Co (建大輪胎), Nankang Rubber Tire Co (南港輪胎) and Federal Corp (泰豐輪胎), have posted improved margins in the first half thanks to a fall in the price of both natural rubber and synthetic rubber.

IBTS Investment Consulting Co (台灣工銀投顧) analyst Mandy Lin (林秋香) agreed, saying Taiwanese tiremakers would also benefit from tire replacement demand in China and restocking demand in their sales channels in the second half, the brokerage said in a separate report.

In the second quarter, Cheng Shin posted a net profit of NT$3.46 billion (US$287.4 million), up 5.26 percent quarter-on-quarter and 17.1 percent year-on-year. Earnings per share came in at NT$1.23.

Its consolidated revenue rose 13.67 percent sequentially and 13.1 percent annually to NT$34.97 billion, according to a company filing with the Taiwan Stock Exchange.

In the first six months, net income was NT$6.78 billion, up 52.06 percent from NT$4.46 billion a year earlier, with earnings per share of NT$2.39, compared with NT$1.58 the previous year.

Fubon Securities forecast Cheng Shin would continue to gain market share due to the company’s leading position in China, competitive pricing and increased capacity in Taiwan, Xiamen and Chongqing.

It predicted the company would double its net profit to NT$15.66 billion this year, or earnings per share of NT$5.56, and increase revenue by 16 percent to NT$139.06 billion.

Jun Liao (廖景濬), an analyst at Grand Cathay Investment Services Corp (大華投顧), said he was optimistic about Cheng Shin's earnings outlook this year, citing seasonal demand in the third quarter and contribution from four new factories in Taiwan and China.

He said in a note that he expected Cheng Shin to see net income this year increase 66.8 percent to NT$14.24 billion, or NT$5.05 per share, while revenue grow 13.23 percent to NT$135.8 billion from last year.

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