Srithai Superware

Srithai Superware Plc

Way ahead: SITHAI reported a 2Q12 net profit of B121m, up by 60% YoY and 3% QoQ. The result was far in excess of our estimate of Bt80m, due to a better top-line than expected, a fatter GM than modeled and lower SG&A than assumed. There was no consensus preview of SITHAI.
Results highlights: The top-line increased 15% YoY, with rises across all business units. Melamine sales grew by 8% YoY, plastic sales by 24% YoY and revenue from the trading & mold business by 15% YoY. GM jumped 251 bps YoY to 21.1% on a changed sales mix—the proportion of higher margin product sales expanded. The SG&A/sales ratio fell 114 bps YoY to 14.5% on better cost control and lower commission expenses for SNatur sales. The bottom-line increased to Bt121m, despite higher wage costs.
Outlook: We are confident that SITHAI will post record revenues for 3Q12 and again for 4Q12, driven by beverage packaging sales expansion. The firm has a three-year contract to supply Pepsi Vietnam, which started on July 1. GM should rise both QoQ and YoY on higher sales prices and an ongoing sales mix shift in favor of higher margin products. As such, earnings should increase YoY in both 3Q12 and 4Q12.
What’s changed? We have upgraded our FY12 bottom-line forecast by 3% to Bt429 and our YE12 target price by 2%. 1H12 earnings represent 56% of our now full-year projection and 58% of the consensus number.
Recommendation: SITHAI has substantial secured earnings (through long-term contracts with customers) and scope for further margin and top-line expansion. The stock currently trades at a bargain PER of 10.4x, slightly lower than its long-term average of 10.7x when its earnings profile wasn’t as good as it is now. The stock deserves a premium because its fundamentals have improved. We have a BUY rating with a YE12 target price of Bt21, pegged to a PER of 13.3x, 0.5SD above SITHAI’s long-term mean.