SVI

SVI Plc

Beat all estimates: SVI reported a 2Q12 profit of Bt154m, a dive of 37% YoY and 49% QoQ. But the result was 14% above our estimate and the consensus because of higher-than-expected GM, a lower SG&A/sales ratio than modeled and due to the recovery of bad debts. Stripping out the extra items, core earnings would be Bt126m, down 42% YoY but up 94% QoQ.
Results highlights: The YoY core earnings plunge was mainly due to a 16% drop in revenue to Bt2.07bn. On a QoQ basis, core earnings rose strongly, led by a 30% sales jump—mostly niche items, such as products related to high-end office automation, telecoms and automotive electronics. Also, GM rose from 10.1 % in 1Q12 to 10.5% (30 bps above our estimate), despite higher wage costs, due to greater sales volume and a belated govt financial payout to help cover wages paid during the 4Q11 flooding period. The SG&A/sales ratio declined as sales rose. SVI recovered Bt4m in bad debts in 2Q12 and received a Bt45m insurance payout, which outweighed the effect of a Bt22m FX loss.
Outlook: 2H12 core earnings should improve further QoQ on increasing sales. We anticipate that the utilization rate will increase to 70-75% in 3Q12 and 80-90% in 4Q12. GM should expand and the SG&A/sales ratio decline QoQ in tandem with greater sales. However, on a YoY basis, GM will diminish, as the firm has discontinued making fat-margin medical-related products.
What’s changed? 1H12 earnings represent 23% of our full-year forecast and 19% of the consensus. We maintain our FY12 projection and YE12 target price unchanged, as we expect further growth in sales and earnings over the next two quarters.
Recommendation: Although there aren’t any obvious near-term catalysts in view, we expect the share price to resume rising, once SVI resolves its current labor shortage, which will enable it to operate at a normal run rate. For the time being, we maintain our HOLD rating with a YE12 target price of Bt3.5—pegged to an EV/EBITDA ratio of 8.2x (1.8SD above its long-term average of 4.5x).