Sri Trang Agro-Industry - UOB Kay Hian 2021-05-14: 1Q21 Earnings Expected To Be The Peak For This Year

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

Sri Trang Agro-Industry - 1Q21 Earnings Expected To Be The Peak For This Year

  • Sri Trang Agro-Industry's 1Q21 earnings were Bt5,958m, surging 598% y-o-y and up 8% q-o-q due to sales growth in the glove and natural rubber businesses. The 2Q21 gross margin was 43%, improving from 14% in 2Q20 but flat q-o-q. However, we expect 2Q21 earnings to drop q-o-q due to the lower ASP of the glove business.
  • We lower our Sri Trang Agro-Industry's 2021-22 earnings projections by 1-4%.
  • Downgrade Sri Trang Agro-Industry to SELL. Target price: Bt36.75.



SRI TRANG AGRO-INDUSTRY'S 1Q21 RESULTS


1Q21 earnings expected to be peak for this year.

  • Sri Trang Agro-Industry (SGX:NC2)’s 1Q21 earnings were Bt5,958m, surging 598% y-o-y and up 8% q-o-q. The earnings were 8% below our expectations as earnings from the natural rubber business were lower than our forecast. However, 1Q21 earnings were in line with the consensus estimate.

1Q21 earnings comprised Bt5,639m from the glove business and Bt319m from natural rubber.

  • 1Q21 sales surged 81% y-o-y and 20% q-o-q driven by higher sales in the glove and natural rubber businesses. 1Q21 gross margin was 43%, up from 14% in 1Q20 but flat q-o-q. The ASP for gloves in 1Q21 was US$76.4 per 1,000 pieces, surging 294% y-o-y and 21% q-o-q.
  • The 1Q21 cost-to-income ratio was 5.2%, down from 7.2% in 1Q20 due to higher sales.


STOCK IMPACT


2Q21 earnings expected to fall q-o-q.

  • Sri Trang Agro-Industry's management said that ASP of gloves in 2Q21 would decline by 15-20% q-o-q due to increasing market supply. Also, the ASP of gloves is expected to continue to drop every quarter by 15-20% q-o-q in 2H21.
  • For the natural rubber business, management expects that the ASP in 2Q21 will rise by 5-7% q-o-q following the uptrend in global rubber prices. It is expected that SICOM TSR20 will be 170-190 Ucents/kg for the rest of this year (In 1Q21 SICOM TSR20 was 167 Ucents/kg).
  • We expect Sri Trang Agro-Industry's 2Q21 earnings to decline q-o-q because higher earnings from the natural rubber business q-o-q will be offset by lower earnings from the glove business q-o-q.


EARNINGS REVISION/ RISK

  • We lower our 2021-22 earnings projections for Sri Trang Agro-Industry by 1% and 4% respectively as 1Q21 earnings were slightly below our expectations. We have yet to include the impact from the hemp business into our projections.

VALUATION/ RECOMMENDATION



SHARE PRICE CATALYST

  • Resumption of global automobile demand.





Thunya Sutavepramochanon UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-14
SGX Stock Analyst Report SELL DOWNGRADE HOLD 1.56 DOWN 1.660



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