Sri Trang Agro-Industry - UOB Kay Hian 2021-02-18: Earnings To Reach A Historical Peak In 2021

SRI TRANG AGRO-INDUSTRY PCL (SGX:NC2) | SGinvestors.io SRI TRANG AGRO-INDUSTRY PCL (SGX:NC2)

Sri Trang Agro-Industry - Earnings To Reach A Historical Peak In 2021

  • Sri Trang Agro-Industry posted an impressive net profit of Bt5,499m in 4Q20, surging from Bt74m in 4Q19 and Bt2,084m in 3Q20 on healthy performances from both its glove and natural rubber businesses.
  • 1Q21 earnings would continue to grow both y-o-y and q-o-q, driven by higher glove ASP. In addition, Sri Trang Agro-Industry plans to start a hemp plantation business in Mar 21, and expects this business to earn Bt450m in revenue in 2022.
  • We think Sri Trang Agro-Industry's 2021 earnings would reach a historical peak.
  • Maintain HOLD. Target price: Bt37.50. Entry price: Bt31.50.



Impressive 4Q20 earnings from Sri Trang Agro-Industry

  • Sri Trang Agro-Industry (SGX:NC2)'s 4Q20 earnings came in at Bt5,499m, surging from Bt74m in 4Q19 and Bt2,084m in 3Q20. See Sri Trang Agro's announcements. The earnings were higher than our and consensus estimates by 20% thanks to robust gross margin and low SG&A expenses. Note that 4Q20 earnings can be broken down into:
    • glove business: Bt4,780m, and
    • natural rubber business: Bt719m.
  • 4Q20 sales surged 76% y-o-y and 59% q-o-q, driven by glove sales. Sales during the quarter can be broken down into:
    • gloves: 52%, and
    • natural rubber business: 48%.
  • Noted that 4Q20 glove ASP was US$63.3 per 1,000 pieces, while 3Q20 ASP was US$36.30 per 1,000 pieces. 4Q20 gross margin was 43% (glove gross margin was 72%, natural rubber gross margin was 12%), improving from 3Q20’s gross margin of 34% (glove gross margin was 60%, natural rubber gross margin was 8%).
  • Sri Trang Agro-Industry's 4Q20 cost-to-income ratio was 5.1%, down from 6.1% in 3Q20.


Sri Trang Agro-Industry's 1Q20 earnings would continue to grow both y-o-y and q-o-q.

  • The key drivers are:
    1. higher glove ASP (+20% q-o-q) on the back of solid demand, and
    2. healthy gross margin of the natural rubber business following to an uptrend in natural rubber prices, supported by recovery in the global automobile industry.
  • Management believes that it is now a seller’s market in the glove industry due to a massive global supply shortage. It has backlog orders until 2022 for latex gloves, and till 2023 for nitrile gloves.


Quick to increase glove production capacity.

  • Sri Trang Agro-Industry's management targets glove capacity to reach 50b pieces in 2022 and 71.32b pieces in 2023, in order to capitalise on the strong demand amidst a global glove supply shortage.
  • In addition, Sri Trang Agro-Industry will launch a new type of latex glove in 2H21, which is suitable for those with protein allergies. It will be priced lower than nitrile gloves and will target the US and Europe markets.

Starting a hemp plantation business.

  • Sri Trang Agro-Industry plans to start a hemp plantation business in Mar 21 with an initial planting area of 100-200 rai, from its own vacant land. At 100-200 rai, management believes Sri Trang Agro-Industry will have the largest hemp planting area in Thailand.
  • Given that 1 rai of hemp trees can produce about 15kg of cannabidiol oil, which has a selling price of Bt100,000/kg, the hemp business is expected to earn at least Bt450m in income in 2022 (crops should be harvested three times a year).


Sri-Trang Agro-Industry - Earnings Revision & Recommendation






Thunya Sutavepramochanon UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-18
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.66 UP 1.337



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