20160829-辉立证券-Sri_Trang_Agro‐Industry_2QFY16_net_profit_up_on_higher_selling_price_11页_1mb

Sri Trang Agro-Industry (STA) 2QFY16 Results Summary

Core Content

• Company Overview: Sri Trang Agro-Industry (STA) is a Thai agri-business listed on the SET index.
• Financial Performance: In 2QFY16, STA reported a net profit of Bt802mn, representing a 55% year-over-year (y-y) increase and a 584% quarter-over-quarter (q-q) increase.
• Growth Drivers: The significant increase in net profit was driven by a 13% q-q rise in selling price, which widened the gross margin to 10.3%, surpassing expectations.
• Sales Performance: Sales for 2QFY16 reached Bt18,752mn, up 24% y-y and 12% q-q. Sales volume increased 34% y-y, while the average selling price decreased 7% y-y.
• Operating Expenses: SG&A expenses rose 33% y-y and 11% q-q, primarily due to increased export-related costs and a change in the classification of logistics and insurance costs.
• Profit Contribution: Profit contribution from associates dropped 38% y-y due to competitive pressures in the rubber glove industry and legal disputes affecting market expansion and capacity growth.
• Financial Cost: Financial cost declined 50% y-y and 38% q-q due to an unrealized gain on USD-denominated loans, but the company recorded a Bt49mn FX loss.

Main Points and Key Information

Upgraded Earnings Forecast

• Reason for Upgrade: Stronger-than-expected selling prices and increased demand, particularly from China, due to low stock levels in Qingdao.
• New Forecasts:
  • FY16 sales forecast upgraded to Bt69,037mn, up 13% y-y.
  • FY16 net profit forecast revised to Bt1,313mn, up 17% y-y.
  • Sales volume is expected to rise 19% to 1.3mn tons.
  • Average selling price is projected to decline 5%, leading to a wider gross margin and higher SG&A expenses.

Rating Upgrade

• New Rating: Upgraded from "Neutral" to "BUY".
• Target Price: Set at Bt14.20, representing a 20.06% increase from the current closing price of Bt12.20.

Key Financial Ratios (2Q16)

• Sales and Services: Bt18,752mn (+12% q-q, +24% y-y)
• Cost of Sales: Bt16,814mn (+6% q-q, +22% y-y)
• Gross Profit: Bt1,938mn (+137% q-q, +50% y-y)
• SG&A Expenses: Bt738mn (+3% q-q, +45% y-y)
• Operating Profit: Bt755mn (+403% q-q, +88% y-y)
• Net Profit: Bt802mn (+584% q-q, +55% y-y)
• EPS (Bt): 0.63 (+55% y-y)
• P/E Ratio: 11.9 (FY16E)
• BVPS (Bt): 16.72 (+3% y-y)
• P/B Ratio: 0.7
• DPS (Bt): 0.50 (+25% y-y)
• Dividend Yield (%): 4.1
• ROE (%): 6.29
• Debt/Equity (X): 1.03

Corporate Governance and Anti-Corruption

• Anti-Corruption Indicators:
  • Level 5 (Extended): Policies extend to business partners, dealers, and distributors.
  • Level 4 (Certified): Policies are certified by CAC and independent assurance providers.
  • Level 3 (Established): Policies cover anti-bribery, and employees are educated on anti-corruption.
  • Level 2 (Declared): Declare participation in CAC against corruption.
  • Level 1 (Committed): Statements against corruption and no involvement in malpractices.
• Survey Context: The survey results are based on third-party information and are not an internal evaluation of the company's operations.

Industry Group

• Sector: Agro & Food Industry [AGRO]
• Sub-sectors:
  • Agribusiness
  • Food & Beverage

Research Methodology

• Rating System:
  • Capital Gain >15%: "BUY"
  • Capital Gain 5% - 15%: "ACCUMULATE / TRADING BUY"
  • Capital Gain 0% - 5%: "NEUTRAL"
  • Capital Gain <0%: "SELL"
• Qualitative Considerations: Recommendations also take into account risk reward profile, market sentiment, price appreciation, stock price catalysts, and speculative elements.

Conclusion

• Positive Outlook: STA is showing a strong performance in 2QFY16, driven by higher selling prices and increased demand, especially from China.
• Risks: The company faces legal disputes and competition, which may affect future earnings. The ongoing arbitration case with Semperit could limit market expansion and capacity increase.
• Investment Recommendation: The upgraded rating to "BUY" reflects the stronger-than-expected performance and the potential for further growth.