SVI

SVI Plc
Above our estimate
SVI reported a 4Q13 net profit of Bt1,004m, up by 349% YoY and 387% QoQ. The number exceeded the consensus by 22% and our estimate by 8%, due to a lower SG&A/sales ratio than assumed. Stripping out an FX gain, big-ticket insurance payouts and the reversal of an allowance for doubtful accounts, core earnings would be Bt195m, up by 33% YoY and 28% QoQ. 
Results highlights
4Q13 sales rose by 26% YoY and 12% QoQ to Bt2.4bn, despite the fact that the quarter is SVI’s low season. The YoY and QoQ top-line expansion was led by the commercial run of a production line for new customers—mostly niche products (chiefly componentry for IP cameras and professional audio) and medical products. Gross margin was 10.5%, up a hefty 94 bps YoY on baht appreciation. The SG&A-to-sales ratio declined to 3.8% and was significantly below our assumption of 4.3%. SVI booked one-off expenses totaling about Bt97m in 4Q13 for a loan repayment and for administrative costs tied to the winding up of SVI Electronics (Tianjin).
The firm also booked an FX gain of Bt6m, the reversal of a Bt6m allowance for a doubtful account and insurance payouts totaling Bt760m. SVI used much of the cash received from its insurance companies to pay down tong-term debt, so at YE13 it had a net cash position.
Outlook
Management guides for 20% sales growth this year. The target looks achievable, as commercial runs started for several new customers in 4Q13 and buyers should send more orders in 1Q14. We expect GM to expand on a rising proportion of orders from new customers (which yield fatter margins than orders from existing clients) and due to the low base set by FY13. Moreover, financial costs will decline with debt repayments following the big insurance payouts in 4Q13. We anticipate core profit growth of 71% in FY14. For 1Q14, we anticipate that core earnings will rise YoY and QoQ, despite the fact that it is still low season for SVI.
What’s changed?
Our FY14 earnings forecast and target price stand unchanged.
Recommendation
The current valuation doesn’t yet fully reflect SVI’s fundamentally better earnings outlook, driven by sales and margin expansion. The stock currently trades at an FY14 core PER of 11.5x against a hefty core profit growth profile of 71% for the year. Our BUY rating stands with a YE14 target price of Bt4.7, pegged to an FY14 core PER of 12.7x (1SD above its long-term average).