Srithai Superware

In line with our estimates

Srithai Superware Plc (SITHAI)

SITHAI reported a 4Q12 net profit of B157m, up by 79% YoY and 8% QoQ. Stripping out expenses related to windstorm damage at the Suksawat plant, core earnings would be Bt162m, up by 454% YoY and 3% QoQ. Core earnings were in line with our estimate, but 21% greater than the consensus.

Results highlights

Sales rose by 19% YoY and 7% QoQ to Bt2,414m, driven by melamine and plastic sales. Melamine product sales grew 21% YoY on increasing demand, both domestic (up 21% YoY) and export/overseas (up 12%). Plastic sales jumped 24% YoY, led by greater demand for food & beverage packaging and other manufactured plastic products. GM slipped by 47 bps YoY and 322 bps QoQ to 20.6% on slimmer margin at a subsidiary and baht appreciation. The SG&A/sales ratio fell 140 bps YoY to 13.8% on better cost control. There was a Bt4m loss incurred from windstorm damage at SITHAI's Suksawat plant during the quarter. As such, net profit came to Bt157m.

Outlook

We expect 1Q13 earning to decline QoQ but rise YoY. A record top-line is anticipated, but GM will be squeezed by higher wage and raw material costs and a stronger baht. However, We expect GM to resume an expansionary trend in 2Q13, boosted by a fatter GM for beverage packaging at the Vietnam plant brought about by efficiency improvements. GM and net earnings should then sustain QoQ growth momentum throughout the rest of the year. Furthermore, good operational cost control will keep the SG&A/sales ratio low.

What's changed?

We maintain our FY13 earnings forecast of Bt610m, growth of 13% YoY. The key variables to our projection are the defect rate at the Vietnam plant, baht appreciation/depreciation, olefins price movements and SITHAI's ability to pass through costs.

Recommendation

Although the share price has been pressured by anticipation of weaker QoQ earnings in 1Q13, we expect SITHAI to outperform the SET in 2Q12, when it will deliver QoQ profit growth. Its long-term profile remains attractive—an FY13-14 earnings CAGR of 15%. The stock currently trades at an FY13 PER of 13x, which translates into PEG of 0.8x. Our BUY rating stands with a YE13 target price of Bt33.5, pegged to a PER of 15x.