Wednesday, November 20, 2013

Sri Trang Agro-Industry : CY14 norm earnings seen better than CY13 (Phillip)

Sri Trang Agro-Industry
Target Price (Bt) 15.6
Closing Price (Bt) 13.00
CY14 norm earnings seen better than CY13

 Company Overview
STA is a Thailand’s biggest rubber producer and exporter. Its products include block rubber, ribbed smoked sheets (RSS), and concentrated latex. Its customers are automobile tire manufacturers and rubber glove producers.

• STA reported 3QCY13 net profit of Bt228mn, down y-y and q-q. The quarterly profit lagged our forecast on higher expenses and interest expenses and lower profits from affiliates.


• We trim our CY13 pre-exceptional profit outlook for STA to reflect lower-than-expected 3QCY13 results.

• STA has maintained its capacity expansion plan in terms of TSR plant and rubber plantation to accommodate future growth.

• We see brighter outlook for STA in CY14 on the back of sales volume growth and better ASPs.

• We upgrade STA shares to ‘BUY’ with a CY14 target price of Bt15.60/share.

What is the news?
STA reported 3QCY13 net profit of Bt228mn, down y-y and q-q. The quarterly profit lagged our forecast on higher expenses and interest expenses and lower profits from affiliates. In this period, quarterly sales slipped 6% y-y and 5% q-q to Bt21,495mn as a drop of 20% y-y and 11% q-q in average selling prices (ASPs) outweighed an increase of 17% y-y and 7% q-q in sales volume to 279,687 tons.

How do we view this?
Sales volume growth and strong ASPs would help improve earnings on a normalized basis. Capacity addition plan and more upstream expansion would make earnings more stable in the future. Sales growth momentum especially in key markets like China also looks set to continue.

Investment Actions?
In view of earnings recovery story, we upgrade STA shares to ‘BUY’ with a CY14 target price of Bt15.60/share.


3QCY13 net profit short of forecast at Bt228mn
STA reported 3QCY13 net profit of Bt228mn, down y-y and q-q. The quarterly profit lagged our forecast on higher expenses and interest expenses and lower profits from affiliates. Quarterly sales slipped 6% y-y and 5% q-q to Bt21,495mn as a drop in ASPs outweighed sales volume growth. In this period, sales volume jumped 17% y-y and 7% q-q to 279,687 tons on increasing exports to China but ASPs dropped 20% y-y and 11% q-q. Margin widened to 6.6% in this period from 4.4% in the previous quarter thanks to a Bt322mn reversal of provision for inventory allowances. SG&A expenses were down 4% y-y on lower cess expenses but up 9% q-q.

Profits from rubber glove and natural rubber processing affiliates fell in both y-y and q-q terms on declining profits from both affiliates. Interest expenses rose substantially y-y and q-q to Bt437mn on increased loans amid growing sales volumes and US$54mn loan at its Indonesian subsidiary. As the Indonesian rupiah weakened 15% q-q, there was also a FX loss of Bt274mn on loans at its Indonesian subsidiary. In this period, the results also included a FX gain of Bt193mn and a net loss from other items of Bt103mn.

Cut in CY13 pre-exceptional profit outlook
In 4QCY, sales volume is expected to be 3% lower than in 3QCY13. ASPs looks set to edge lower due to the flush season of rubber supply in Thailand. Margin is however likely to pick up on contract selling prices amid lower raw material prices. In 9MCY13, profit came in at Bt1,386mn. As the 9MCY13 results accounted for only 64% of our full-year target, we revise downwards our CY13 earnings view for STA to reflect lower-than-expected 3QCY13 results. Under the new estimate, we forecast (i) CY13 sales will be 11% lower than CY12 at Bt88,628mn on assumptions that sales volume will be up 11% y-y to 1.08mn tons and ASPs will average US$250/ton, (ii) full-year margin will improve on effective raw material management, (iii) expenses will drift lower as falling rubber prices will push cess expenses lower and cess will be waived in the fourth quarter, (iv) interest expenses will rise on increasing debt load, and (v) a weaker Indonesian rupiah will lead to a FX loss on loan at its Indonesian subsidiary. Full-year pre-exceptional profit is estimated to be Bt842mn and net profit is forecast to be Bt1,725mn, up 25% y-y.

Capacity expansion plan intact in terms of TSR plant and rubber plantation to accommodate future growth
STA has set a Bt3,600mn investment plan for CY13. Of the total, Bt1,750mn would go towards the construction of a new TSR plant in Ubon Ratchathani and the capacity expansion of Palembang in Indonesia and the rest Bt1,600mn would be spent on acquisition of land bank for rubber plantation. STA also plans to spend Bt2,600mn in CY14 to build six more TSR plants to boost total production capacity from all of its plants above 1.5mn tons in CY15 from the current level of 1.13mn tons and another Bt1.1bn to acquire more land bank to meet its total rubber plantation target of 50.000 rai. Upstream and midstream expansion plans are part of its strategy to accommodate future growth.

CY14 norm earnings seen better than CY13
We are optimistic that its proactive marketing strategy in China, which generates sales as much as 40% of total sales revenue, would allow STA to gain more market share from its rivals. In other markets, India, Vietnam and Japan show the continued growth. This, together with production expansion to support rising orders, will boost CY14 sales by a minimum of 10% y-y. Average selling price is projected at US$2,800/ton. Furthermore, profit contribution from affiliates is expected to increase while the depreciation in Indonesia rupee would help cut interest expense. Based on the assumptions, operating profit would grow 27% y-y to Bt1,049mn in CY14.

Upgrade to ‘BUY’ with CY14 target price of Bt15.60/share
In view of earnings recovery story, we upgrade STA shares to ‘BUY’ with a CY14 target price of Bt15.60/share.




Source/Extract/Excerpts/来源/转贴/摘录: Phillip-Research,
Publish date:18/11/13

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