20160615-辉立证券-Khon_Kaen_Sugar_Industry：2QFY16_earnings_down_on_lower_profits_from_power_and_ethanol_11页_1mb

Khon Kaen Sugar Industry Summary

Core Content

• Company: Khon Kaen Sugar Industry (KSL)
• Industry: Agro & Food Industry
• Report Date: 15 June 2016
• Analyst: Frankie Wong, Phillip Securities Group
• Rating: NEUTRAL
• Target Price: Bt4 (+3.89% from closing price of Bt3.94)

Main Points

Financial Performance (2QFY16)

• Net Profit: Down 61% year-over-year (y-y) and 49% quarter-over-quarter (q-q) to Bt179mn.
• Total Sales: Declined 4% y-y to Bt3,939mn.
• Sales Breakdown:
  • Sugar Sales: Increased 2% y-y to 191,093 tons and 3% in average selling price.
  • Ethanol Sales: Volume dropped 5% to 20mn liters and average selling price fell 10%.
  • Power Sales: Volume decreased by 29% to 72,204MW-hr and average selling price dropped 10%.
• Gross Margin: Declined to 24.27% in 2QFY16 from 29.6% in 1QFY16 and 27.2% in 2QFY15.
• SG&A Expense: Increased 9% y-y due to extra logistics costs and higher fees for sugar funds.
• Interest Expense: Reduced due to debt repayment.
• Taxation: Reduced to Bt24 from Bt68 in the same period last year.
• Hedging Gain: Bt23mn from sugar hedging.

6M FY16 Performance

• Net Profit: Down 39% y-y to Bt528mn.
• Total Sales: Rose 7% y-y to Bt7,731mn.
• Gross Margin: Narrowed to 26.86% from 30.72% in the same period last year.
• SG&A Expense: Increased by 9%.
• Debt: Reduced after repayment.

Key Financials

Valuation

• P/E 2016: 15x
• Recommendation: NEUTRAL
• Target Price: Bt4

Earnings Forecast

• FY16 Earnings: Expected to be weaker than previously estimated.
• Reasons: Routine overhauls of power and ethanol plants, falling average selling prices, and lower sugar profits despite increased volume.

Price Performance

Relative to SET Index

Corporate Governance

• The report includes anti-corruption indicators with five levels:
  • Level 5 (Extended): Anti-corruption policies extend to business partners, dealers, and distributors.
  • Level 4 (Certified): Policies certified by CAC and independent assurance providers.
  • Level 3 (Established): Policies cover anti-bribery, and communication/education for employees.
  • Level 3A (Public Statement): Declaration to join CAC, etc.
  • Level 3B (Statement Only): Declare statement and organization's anti-corruption policies but no intention to join CAC, etc.
  • Level 2 (Declared): Declare statement to participate in CAC against corruption.
  • Level 1 (Committed): Organization and Board of Directors' statements against corruption and not getting involved in any malpractices.

Industry Group

• Agro & Food Industry [AGRO]
  • Sub-sectors: Agribusiness, Food & Beverage
• Consumer Products [CONSUMP]
  • Sub-sectors: Fashion, Home & Office Products, Personal Products & Pharmaceuticals
• Financials [FINCIAL]
  • Sub-sectors: Banking, Finance & Securities, Insurance
• Industrials [INDUS]
  • Sub-sectors: Automotive, Industrial Materials & Machinery, Packaging, Paper & Printing Materials, Petrochemicals & Chemicals, Steel
• Property & Construction [PROPCON]
  • Sub-sectors: Construction Materials, Construction Services, Property Development, Property Fund & REITs
• Resources [RESOURC]
  • Sub-sectors: Energy & Utilities, Mining
• Services [SERVICE]
  • Sub-sectors: Commerce, Media & Publishing, Health Care Services, Tourism & Leisure, Professional Services, Transportation & Logistics
• Technology [TECH]
  • Sub-sectors: Electronic Components, Information & Communication Technology

Analysts and Contacts

• Louis Wong: Director, Phillip Securities Group
  • Tel: (852) 22776846
  • Email: louiswong@phillip.com.hk
• Zhang Jing: Research Analyst, Transportation and Automobiles
  • Tel: (86) 21 51699400-103
  • Email: zhangjing@phillip.com.cn
• Chen Xingyu: Director, Research Department, Shanghai Mainland Financial
  • Tel: (86) 21 51699400-105
  • Email: chenxingyu@phillip.com.cn
• Fan Guohe: Research Analyst, TMT
  • Tel: (86) 21 51699400-110
  • Email: fanguohe@phillip.com.cn
• Chen Geng: Research Analyst, Mainland Property
  • Tel: (86) 21 51699400-107
  • Email: chengeng@phillip.com.cn
• Aric Au: Manager, Corporate & Institutional Sales
  • Tel: (852) 22776783
  • Email: corporatesales@phillip.com.hk
• Ma: Contact for Sales

Summary

Khon Kaen Sugar Industry (KSL) reported a significant decline in net profit for 2QFY16, down 61% y-y and 49% q-q to Bt179mn, primarily due to lower profits from the power and ethanol businesses. Total sales fell 4% y-y to Bt3,939mn. The ethanol business saw a 5% decrease in sales volume and a 10% drop in average selling price, while the power business experienced a 29% sales volume drop and a 10% price decrease. Despite a 2% increase in sugar sales volume and a 3% rise in average selling price, the overall financial performance was negatively impacted. Gross margin dropped to 24.27% from 29.6% in 1QFY16 and 27.2% in 2QFY15. SG&A expenses increased 9% y-y due to higher logistics costs and sugar fund fees, but interest and tax expenses decreased. KSL also recorded a Bt23mn gain from sugar hedging.

For the six-month period, net profit declined 39% y-y to Bt528mn, and gross margin narrowed to 26.86% from 30.72% in the same period last year. The company's debt/Equity ratio improved to 1.68 from 1.84, following debt repayment.

Analysts at Phillip Securities Group have downgraded the FY16 earnings forecast due to the expected weaker second-half performance and higher expenses from routine overhauls. KSL is rated NEUTRAL with a target price of Bt4. The company's stock price has been relatively stable, with a 1-year return of -6% and a relative performance to the SET Index of -2%.

The report also includes a comprehensive list of companies in various sectors and their anti-corruption indicators, highlighting the importance of these policies in investment decisions. The PSR rating system is used to assess the stock, with NEUTRAL being the recommendation based on qualitative and quantitative factors.