Srithai Superware

Srithai Superware Plc (SITHAI)

Beat our estimate
SITHAI reported a 1Q13 net profit of B121m, up 3% YoY but down by 24% QoQ. The result beat our estimate by 18% and exceeded the consensus number by 5%, due to lower SG&A than assumed, higher-than-expected profit contributions from associates and a joint-venture and a shallower FX loss than modeled.
Results highlights
Sales rose 15% YoY but softened 4% QoQ to Bt2,312m. Melamine product sales fell 12% YoY on weaker domestic demand (down 13% YoY), but export/overseas melamine sales rose a further 11% YoY. Plastic sales jumped 30% YoY, led by greater demand for food & beverage packaging and other manufactured plastic products. GM fell by 275 bps YoY and 129 bps QoQ to 19.3% on a combination of baht appreciation and wage cost increases. But SITHAI’s SG&A/sales ratio fell 160 bps YoY to 13.2%. Profit contributions from associates and the joint venture totaled Bt16m. As such, net profit came to Bt121m.
Outlook
Weak 1Q13 earnings are now behind us. We anticipate that GM and net profit will post QoQ growth throughout the rest of the year. SITHAI should post a record top-line for 2Q13, led by a jump in beverage packaging plastic sales (high season). The capacity expansion of a key customer is expected to boost plastic sales during 3Q-4Q12. Moreover, the fourth-quarter is high season for melamine sales. We expect GM to resume an expansionary trend during the quarters ahead, boosted by a fatter GM for beverage packaging products, as technical problems at the Vietnam plant have been fixed. Furthermore, good operational cost control will keep the SG&A/sales ratio low.
What’s changed?
We have revised up our FY13 profit forecast by 2% to Bt586m, growth of 8.2% YoY. 1Q13 earnings represent 21% of our full-year projection. FX is the key variable in our model—we assume an exchange rate of Bt29.5/US$; the current spot price is Bt29.7/US$. We have also revised up our target price to Bt31.5 from Bt31. 
Recommendation
Although the share price has been pressured by weak 1Q13 GM, we expect SITHAI to outperform the SET in 2Q13, when it will deliver QoQ profit growth. Its long-term profile remains attractive—an FY13-15 earnings CAGR of 15%. The stock currently trades at an FY13 PER of 11.4x, which translates into PEG of 0.8x. Our BUY rating stands with a YE13 target price of Bt31.5, pegged to a PER of 14.6x.