Q4 2012F: Getting back on track, little by little NeutralSVI Plc
4Q12F recovering, but still a ways to go. SVI's 4Q12F core profit is expected to
improve 19% QoQ to Bt101mn, with Bt158mn net profit after FX gain and additional
insurance payment. Although sales are likely to slip 9% QoQ on seasonality to ~Bt2bn,
gross margin is projected to recover by 130 basis points QoQ to 9.3% thanks to
improving cost management as it recovers from the flooding. Note that this 4Q12F is
still below its average quarterly earnings of Bt226mn in 9M11A before the severe
flooding in 4Q11A. Because of the floods, 2012F core profit is expected to fall by 44% to
Bt387mn, but the insurance payment of ~Bt668mn and Bt127mn FX gain are expected
to boost net profit to Bt1.2bn.
Soft 1Q13F but 2013F to improve. 1Q13F is likely to decline QoQ as it is the low
season for the industry and also because of the strengthening of the baht. However,
2H13F looks better with expected contribution from five or so new clients who signed
contracts last year. These, together with some recovery in orders after the flooding,
are expected to drive 2013F sales up 20%. The higher sales plus expected improvement
in gross margin to 11.4% in 2013F from 9.4% in 2012A, from both flood recovery and
new cost control programs, will bring core profit up 87percent from last year's low base to
Bt731mn. Another boost will be provided by the booking of the final insurance
payment of Bt1.9bn in 1H13F, giving 2013F net profit of Bt2.6bn. It will use this
insurance money to: 1) repay debt and 2) perhaps grab an M&A opportunity. It may
also use some of the funds for a dividend.
Expect no 2012F DPS. As the majority of the insurance claim is expected to be paid in
2013, we believe SVI will not pay a dividend on 2012F - for the second year in a row -
but return to pay dividends on 2013F.
Limit upside, maintain Neutral. SVI is currently trading at 2013F PER of 10.8x, close
to the ten-year industry average of 11x, from which we derive our 2013 TP of Bt4.1.
Despite the expected recovery in 2013F, we maintain Neutral and prefer KCE (with
cheaper 2013 PER of 8.2) and DELTA (with higher dividend yield of 4.7%).