New FV at B19.1
Sri Trang Agro-Industry Plc (STA)
Rubber producers' measure to intervene rubber price results in limited downside of global rubber price
The global rubber price is projected to increase during the next 3 months
due to following supportive factors from the measure of rubber price
intervention: 1) the hope toward the economic stimulus measure
under the new government of Japan (the demand for rubber is ranked at
the world's 4th highest) through easing monetary policy to inject more
money into the economic system, 2) the measure to sustain Thai rubber
price (the world's 1st major rubber producer) with the budget of B30bn to
maintain the rubber price's stability which would be by buying rubber from
agriculturists at the price higher than the market's (starting in October 2012
- March 2013), 3) the measure to the rubber export of world's major
rubber producers (Thailand, Indonesia, and Malaysia) by reducing the
rubber export volume to the global market by 450,000 tons (considered 4%
of global rubber production) during October 2012- March 2013. These 2
measures mentioned above all have reduced the global rubber supply from
entering the global market to meet the demand for rubber all over the world,
boosting the rubber price to improve in 1Q13. Moreover, the 3 major rubber
producers would team up during 2012-2021 in order to cooperate and follow
the situation to sustain the rubber price and raise the usage of rubber at the
regional level. We estimate 2012 average price of block rubber in SICOM at
US$3.16bn/ton (B98/kg) or 30% YoY decrease; however, this would
gradually recover during 2013. The average rubber price in 2013 is projected
at US$3.3/ton (B101/kg) or 3% YoY increase.
Revised up 2012-13 forecast… underestimated gross margin revised up
We revise up our 2012-13 net profit forecast (details on the following page's
table) due mainly to the spread between the selling prices (both block rubber
and international market's rubber sheet) and Thailand's raw material prices
that already have risen to normal. Combined with the global rubber price
that tends to get more stable in 2013, STA is able to manage the rubber
stock with more efficiency which would continuously be beneficial for 2012-
13 gross margin to increase to 4.5% and 5.5% respectively (from 3.8% and
4.5% respectively). Overall, we hold more positive prospect toward the
operating result in 2013 of STA, projected to grow more by 21percent from 2012
due to 1) the company's strategy of aggressive growth in 2013 that aims to
raise the total sales by 10% YoY from expanding the production capacity of
Thai and Indonesian factories, and 2) the global rubber price that is likely to
be more stable in 2013.
Upgrade to "BUY" from "SELL"… new FV at B19.1
We upgrade our recommendation from "SELL" to "BUY". Fair value, using
1.26x PBV, at end-2013 stands at B19.1. In a short term, we're convinced
that the share price would outperform the market in 1Q13 due to the global
rubber price that tends to swing up in 1Q13 along with the low season of
Thailand's rubber production (the world's 1st major rubber producer) which
is in line with our statistical analysis of the rubber price movement in the
past (during 2002-2011) that usually increased in the first halves of years,
especially in January-February when the rubber price would rise by 9.8%
MoM and 6.3% MoM respectively with 80% possibility Accordingly, this is
considered the psychologically positive factor for STA's share price.
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Article source: http://www.thethailandlinks.com/2013/01/01/sri-trang-agro-industry/
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