Results Analysis: HOLD for high yields
3Q21 earnings slightly improved from a higher ASP y-o-y; however, the ASP showed a declining trend q-o-q. STGT posted a 3Q21 net profit of Bt4,533m (+3.0% y-o-y, -51% q-o-q). This was mainly due to its ASP of USD46.7/k pcs (+29% y-o-y, -36% q-o-q), higher COGS, and SG&A. Despite a resumption of two of its production plants (temporary suspension from the COVID-19 outbreak in 2Q21), container shortages and shipping congestion persisted. This led to its sales volume of 7,076m pcs (-0.9% y-o-y, +24% q-o-q).
Its sales revenue stood at Bt10,864m (+33% y-o-y, -16% q-o-q) with a declining GPM of 52% from 67% in 2Q21 and 60% in 3Q20. This was mainly attributed to its decreasing ASP. Its COGS rose along with its increase in production volume to Bt5,273m (+63% y-o-y, +22% q-o-q), given its capacity expansion and production resumption. Its SG&A increased to Bt592m, with SG&A to sales of 5.4% (from 3.6% in 2Q21 and 2.9% in 3Q20) due to higher freight costs.
This quarter, it recorded a net FX loss of Bt267m from the effect of baht depreciation on its hedging transactions. This resulted in a net profit of Bt4,533m (+3% q-o-q, -38% y-o-y), with a net profit margin (NPM) of 42%, declining from 56% in 2Q21 and 54% in 3Q20.
Balance sheet remains strong with net cash. Its D/E ratio remains unchanged at 0.22x; nonetheless, its cash conversion cycle increased to 49 days from 27 days in 2Q21 on the back of an increase in inventory as a result of container/shipping issues.
3Q21 DPS of Bt1.25. STGT announced a DPS of Bt1.25 (a 79% payout) with an XD date of 19-22 Nov and payment date of 7 Dec 2021. This brings its total 9M21 DPS to Bt4. We maintain our DPS forecast of Bt4.8/1.9 for FY21F/22F, assuming a 50% payout. This represents an annualised yield of 17%/6.9%.
4Q21 outlook. We have joined STGT’s analyst briefing on 9 Nov 2021, the management guided 4Q21 outlook as follows: 1) ASP to continue dropping but at a decreasing rate of -25-30% q-o-q in 4Q21 vs. -36% q-o-q in 3Q21, 2) ASP for natural rubber (NR) glove to bottom in 4Q21F and pick up from 1Q-2Q22F onwards; this is on the back of low competition on NR gloves and STGT is one of the largest NR gloves producers, 3) raw material prices to drop in accordance with ASP but at a different magnitude for NR and Nitrile rubber (NBR) glove.
Dialed down sales volume in FY22F. We expect the container shortage and shipping congestion to persist in 2022F according to the management guidance. Thus, we dial down our sales volume assumption to 43bn pcs (from 46bn pcs previously). This resulted in a decrease in FY22F earnings forecast of 11% (vs. previous assumptions) to Bt10.9bn, with a lower DPS of Bt1.9 (vs. Bt2.1 previously) (see table on Page 3).
Maintain conservative view on ASP and high margins vs pre-COVID-19. We maintain our conservative ASP of USD52.4/26.2/19.6/kpcs in FY21/22/23F (vs. 9M21 ASP of USD65.3/k pcs). We think that the new incoming supply would continue to pressure the ASP in FY21F and onwards. Moreover, various research houses expect supply would grow 20-30% p.a. (mainly from Malaysia, China, Thailand) vs. demand growth of 12-15% in FY21-22F. This would narrow the demand-supply gap and weigh on the ASP going forward.
Nonetheless, we believe STGT could maintain its high margins vs. pre-COVID-19 in FY22F onwards – GPM of 30%+ vs. 10%+ pre-COVID-19 and NPM of 20%+ vs. a high single digit pre-COVID-19. This is mainly on the back of its cost advantage vs. its peers, economies of scale, and production efficiencies, as well as its interest payment subsidy and tax benefits.
High-yield play and upside to valuation; maintain HOLD with FY22F TP of Bt32.50. We used DCF valuation method to derive STGT’s TP (WACC: 10.5% and terminal growth: 1%), and our TP drops to Bt32.50 (from Bt42.50 previously). This is on the back of our dimmer outlook on sales volume. Nevertheless, we expect STGT to maintain its high margins vs pre-COVID-19.
STGT also offers a high dividend yield of 17%/6.9% in FY21/22F, with committed potential sales and expansion prospects given a solid demand growth of 10-15% p.a. Moreover, we believe the stock price has already reflected its 3Q21 performance with an all-time low price of Bt26.50 on 8 Nov 2021; its price has dropped -33% vs. SET index of -0.4% from Sep-21 to date. Thus, we maintain our HOLD call.
Quarterly / Interim Income Statement (Btm)
|Cost of goods sold||-3,235||-4,317||-5,273||63%||22%|
|EBIT (Operating profit)||4,792||8,690||5,254||10%||-40%|
|Other Gain / (Loss)||-109||-216||-500||359%||132%|
|FX Gain / (Loss)||139||134||233||68%||-51%|
|Net profit margin||54%||56%||42%|
|% Sales growth||68%||-16%||-16%|
|% Gross profit margin||60%||67%||51%|
|% SG&A to sales||-3%||-4%||-5%|
|% operating profit margin||59%||67%||48%|
|% Effective tax rate||-8%||-11%||90%|