Sri Trang Agro-Industry - UOB Kay Hian 2020-08-17: 2Q20 Record-High Earnings

SRI TRANG AGRO-INDUSTRY PCL (SGX:NC2)

Sri Trang Agro-Industry - 2Q20 Record-High Earnings

Sri Trang Agro reported 2Q20 earnings of Bt1,094m, surging 305% y-o-y and 28% q-o-q thanks to solid gross margin. 2H20 earnings would surge h-o-h mainly from huge earnings of its glove business.
We revise up our 2020 earnings projection by 6% as 2Q20 earnings beat our expectation while we trim our 2021-2022 earnings projection by 1% each as we have a more cautious view on the glove business.
Maintain BUY. Target price: Bt42.00.

Sri Trang Agro (SGX:NC2)’s (STA) 2Q20 earnings came at Bt1,094m, surging 305% y-o-y and 28% q-o-q thanks to solid gross margin. See Sri Trang Agro Announcements. The earnings were significantly higher than our expectations as its glove business recorded earnings of Bt856m and natural rubber business at Bt238m were both higher than our expectations of Bt645m and Bt15m respectively.
Note that 1Q20 earnings from its glove business and natural rubber businesses was Bt341m and Bt513m respectively. 2Q20 sales was flat y-o-y as higher sales from glove business was offset by lower sales from natural rubber business. 2Q20 sales can be broken down into glove sales 32% (+72% y-o-y) and natural rubber sales 68% (-16% y-o-y).
2Q20 gross margin was 16%, up from 10% in 2Q19 and 14% in 1Q20. Note that 2Q20 gross margin of its glove business was 29%, up from 19% in 1Q20.
2Q20 ASP of glove was US$20.7 per 1,000 pieces, up 10% q-o-q and 5% y-o-y. 2Q20 gross margin of its natural rubber business was 10%, down from 13% in 1Q20 as it was impacted by the COVID-19 pandemic. 2Q20 cost-to-income ratio was 8%, up slightly from 7% in both 2Q19 and 1Q20.

Key driver would be the huge earnings contribution from its glove business as ASP of gloves would increase significantly h-o-h in 2H20.

We revise up our 2020 earnings estimates for Sri Trang Agro by 6% as 2Q20 results beat our forecasts. However, we have trimmed our 2021-22 earnings projection by 1% each on the back of a more cautious view on its glove business.

Maintain BUY with target price at Bt42.00, based on SOTP-valuation. We have pegged a valuation of 8x 2021F PE (below the stock’s 10-year mean at 13x) for the natural rubber business and 21x 2021F PE (in line with competitor Kossan Rubber Industry’s 5-year mean PE of 21x) for its glove business.
See Sri Trang Agro Share Price; Sri Trang Agro Target Price; Sri Trang Agro Analyst Reports; Sri Trang Agro Dividend History; Sri Trang Agro Announcements; Sri Trang Agro Latest News.
Sri Trang Agro's share price catalyst: Rising global glove demand.

Thunya Sutavepramochanon UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-17

SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850