SRI TRANG AGRO-INDUSTRY PCL (SGX:NC2)
Sri Trang Agro-Industry - 4Q20 Net Profit To Be At Record High
- We expect Sri Trang Agro's 4Q20 net profit to be impressive, thanks to surging glove ASP and a wider gross margin in its natural rubber business.
- Sri Trang Agro's 2021 net profit should be huge on higher contributions from its glove and natural rubber businesses. Earnings would normalise in 2022.
- Maintain HOLD. Target price: Bt30.00.
- Suggest entry price: Bt23.00.
Sri Trang Agro's 4Q20 net profit to be at record high, driven by higher glove ASP.
- Sri Trang Agro Industry (SGX:NC2)'s management had guided glove ASP would surge 50% q-o-q in 4Q20 as the glove business is still a seller’s market. Also, the natural rubber business should see a higher gross margin as natural rubber prices are rising.
- See report: Sri Trang Agro-Industry - 3Q20 Earnings Up Y-o-y & Q-o-q; Downgrade To HOLD. We project Sri Trang Agro's 4Q20 net profit at Bt4,566m, up 7-fold y-o-y and 119% q-o-q. Sales are expected to increase 88% y-o-y and 70% q-o-q, driven by strong glove sales.
- Gross margin is expected at 36% (3Q20: 34%, 4Q19: 9%). Cost-to-income ratio would be 8%, flat y-o-y.
Glove production capacity rising fast.
- Sri Trang Agro has shortened the time needed to reach glove production capacity of 100b pieces to 2026. For 2021-26, production capacities would be 35.9b pieces, 49b pieces, 65b pieces, 82.55b pieces, 95b pieces and 106.3b pieces respectively.
- It expects glove ASP to still increase slightly m-o-m in Jan 21 due to strong demand. Backlog is till 1Q22 for latex gloves and 2Q23 for nitrile gloves. However, selling prices have not been fixed due to the uncertainty of how much of the increase in prices of raw materials could be passed on to selling prices. At this time, there is no cancellation in glove orders.
Natural rubber prices are rising.
- Management sees the easing in the COVID-19 pandemic would result in a recovery in global tyre demand. In addition, the strong glove demand would also support demand for natural rubber. Management believes SICOM TSR20 would be at 160-180 Ucents/kg in 2021.
Maintain HOLD
- We slightly revise up our Sri Trang Agro's 2021-22 net profit projections by 1% and 4% respectively due to the company guidance’s for capacity expansion to rise.
- Maintain HOLD with target price unchanged, based on SOTP-valuation. We value Sri Trang Agro's natural rubber business at 6x 2021F PE (below the stock’s 10-year mean of 13x) and the glove business at 6x 2021F PE (-3SD of its competitor Top Glove (SGX:BVA)’s 5-year forward PE mean of 13.0x). We think Sri Trang Agro's earnings would normalise in 2022.
- 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.
- Entry price is Bt23.00.
- We forecast Sri Trang Agro's 2020 dividend yield at 7.4%. Sri Trang Agro just announced an interim dividend of Bt0.50 per share, ex-dividend is on 26 Nov 20.
Thunya Sutavepramochanon
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-11-17
SGX Stock
Analyst Report
1.337
SAME
1.337
