20180119-辉立证券-Sugar_price_float_a_boon_for_industry__10页_354kb

Khon Kaen Sugar Industry Summary

Core Content

Khon Kaen Sugar Industry (KSL) is a major player in Thailand's sugar industry and is part of the Food & Beverage sector. The company has undergone significant changes and adjustments in its financial structure and business operations in response to government policies and market conditions.

Main Points

• Sugar Price Float: The Thai government, through the NCPO, has floated the local sugar price to align with global rates and removed the domestic sugar quota system to comply with WTO rules and counter Brazil's accusations of unfair subsidies.

• Impact on Industry: This move is expected to reduce domestic retail sugar prices by Bt2–Bt3/kg, bringing them down to Bt17–Bt18/kg from Bt20/kg. It also terminates the Bt5/kg tax on domestic sugar sales, which funded the Cane and Sugar Fund (CSF), leading to lower SG&A expenses and potentially higher profits.

• Earnings Forecast for FY18:

  • Sales are expected to decrease by 10% year-over-year (y-y) to Bt14,094mn due to the deconsolidation of the ethanol business and the termination of the tax.
  • Net profit is forecasted to drop by 31% y-y to Bt1,367mn, primarily due to a high base effect from FY17's exceptional items.
  • Profit before tax is estimated at Bt1,675mn, up 335% y-y.

• Profitability:

  • EBITDA margin is projected to rise to 24.78% in FY18, up from 11.58% in FY17, due to the price float and improved operational performance.
  • Net profit margin is expected to be 9.70% in FY18, lower than the previous year due to increased costs from drought and molasses.

• Dividend and Yield:

  • DPS is expected to be Bt0.09 in FY18, up from Bt0.05 in FY17.
  • Dividend Yield is projected to be 2.1% in FY18, up from 1.1% in FY17.

• Valuation:

  • The target price for FY18 is set at Bt4.96, which is 13.81% higher than the closing price.
  • The 'ACCUMULATE' rating remains unchanged, as the new target price still offers limited upside from current levels.

• Market Performance:

  • The stock has underperformed compared to the SET index, with a 1-year return of -41%.
  • The stock has shown a negative trend in the last 3 months and 1 month.

• Key Financials:

  • Sales and net profit have shown a decline in FY18 due to the deconsolidation of the ethanol business and the impact of the previous year's high net profit.
  • EBITDA and EBIT are expected to rise significantly in FY18 due to improved margins and cost efficiency.

• Balance Sheet:

  • Total assets are projected to increase to Bt42,428mn in FY18, with total liabilities at Bt23,821mn.
  • Shareholder equity is expected to rise to Bt18,143mn, indicating improved financial health.

• Cash Flow:

  • Cash flow from operations is projected to increase in FY18, reflecting improved profitability.
  • Net cash flow is expected to be positive, indicating good cash management.

• Peer Comparison:

  • KSL's P/E ratio is 14.3, lower than the industry average.
  • The company's P/B ratio is 1.0, indicating fair valuation.
  • Dividend yield is competitive with peers.

Key Information

• Company Name: Khon Kaen Sugar Industry PCL
• Industry: Agro & Food Industry
• Market Cap. (Bt): 19,581mn
• Target Price (Bt): 4.96
• Recommendation: ACCUMULATE
• Contact Information:
  • Benny WANG: Research Analyst, (86) 2151699400-103, zhangjing@phillip.com.cn
  • ZHANG Jing: Research Analyst, Transportation and Automobiles
  • John WONG: Research Analyst, HK & Mainland Properties, Hotels & Entertainment
  • FAN Guohe: Research Analyst, Pharmaceutical, Health & Personal Care, TMT
  • WANG Yannan: Research Analyst, New Energy

Risk Factors

• Raw Material Risk: Sugarcane prices and availability can affect production costs.
• Global Sugar Price Volatility: Fluctuations in global prices can impact domestic sales and profitability.
• Government Policy: Changes in government regulations can significantly affect business operations and financials.

Summary

Khon Kaen Sugar Industry (KSL) is expected to benefit from the sugar price float policy, which aims to align local prices with global rates and remove the domestic quota system. This move is anticipated to lower retail prices and reduce SG&A expenses, leading to higher profits. However, the company is also facing challenges due to the prolonged slump in global sugar prices and a high base effect from previous exceptional items. The 'ACCUMULATE' rating remains unchanged as the new target price still offers limited upside. The company's financial performance is projected to improve in FY18, with higher EBITDA and EBIT margins. Despite this, net profit is expected to decline due to the impact of the previous year's high earnings. The company's valuation is considered fair, with a P/E ratio of 14.3 and a P/B ratio of 1.0.