Srithai Superware

Srithai Superware Plc (SITHAI)
Investment thesis: SITHAI is one of our top BUYs in Consumer space for its strong earnings visibility, backed by Pepsi contracts and GM expansion. The company yesterday announced that it is about to sign another contract with Pepsi Vietnam to expand its beverage packaging coverage to northern Vietnam, which means upside to our FY13 earnings forecast.  The stock currently trades at a PER of 10.8x, equal to its long-term mean, but deeply discounted to the Consumer average of 26.6x and 19% below our YE12 target price of Bt20.50 (0.5SD above its long-term mean).
Forthcoming Pepsi contract: The firm announced that it is about to sign a second contract with Pepsi Vietnam worth about Bt400m per year to make PET bottles and caps for northern Vietnam (the length of the contract has yet to be disclosed, but management expects to start in Dec 2012). SITHAI previously signed a 3-year contract with Pepsi Vietnam worth Bt500-600m annually to supply caps and PET bottles to southern Vietnam, effective July 2012. Based on the size of the new contract, the firm will require additional CAPEX in the range of Bt100-200m this year.
Our thoughts: The new contract with Pepsi Vietnam will generate positive sentiment toward the stock. Given that SITHAI will start supplying beverage packaging for northern Vietnam by next year, we roughly estimate that the contract will boost FY13 EPS by about Bt0.07 from our current number. 
2Q12 preview: We anticipate a flat YoY top-line of Bt1.8bn, due to a lower contribution from the trading business SNatur. GM should expand by 65 bps YoY to 20.7%, due to a better sales mix. The SG&A/sales ratio should post a 60 bps YoY drop as a result of better cost management and the SNatur sales decline (lower commission expenses). As such, We estimate 2Q12 earnings at Bt80m.
Take-off in 2H12: The first contract with Pepsi Vietnam will generate substantial revenue in 2H12. We anticipate a top-line increase of 13% YoY for the period. Furthermore, GM should expand in tandem with 3Q12 sales prices increases for melamine products of about 10% and for other plastic products of up to 5%.