SVI

Price Target : Bt3.10

3Q11 profit grew 14% YoY to Bt214m, in line

Expect Chaengwattana plant to start in Dec 2011 and Pathumthani plant to resume in 1Q12

Maintain HOLD, Bt3.1 TP pegged to 8x FY12 PE; offering 5.7% dividend yield

Comment on Results

3Q11 highlights. Earnings grew 14% YoY on the back of a 37% increase in revenue to US$89m, thanks to strong demand for IP video and industrial products. However, gross margin fell to 10.5% from 11.4% in 3Q10, due to higher material costs driven by tight supply of raw materials. In 3Q11, SVI also reversed a Bt9m machinery impairment loss and booked that as income. 9M11 profit is 98% of our FY11F profit, but we are keeping our forecast given expected weak operations this quarter due to the flood. 

Commercial start-up of Chaengwattana plant in December. Since the severe flooding in Bangkadi Industrial Park, SVI has moved five out of its fifteen production lines to Changwattana plant (and plans to install two more lines). This plant, which was pending sale, should generate US$20m revenue in Dec11. However, it is also at risk of being flooded. We expect sales to drop substantially in 4Q11 (from average US$80m sales per quarter). SVI has so far booked US$15m revenue in Oct11. We expect the flooded plant at Pathumthani to resume operation in 1Q12.

Recommendation

Maintain HOLD. Our target price is unchanged at Bt3.1, pegged to 8x FY12F PE. We expect SVI’s earnings visibility to weaken in the next six months due to the floods, and are also cautious of the negative impact of a global economic slowdown and rising wages.