Thai Vegetable Oil

In line with our estimate

TVO reported a 3Q14 net profit of Bt255m, up 16% YoY but down 48% QoQ. Stripping out a Bt3m FX gain in 3Q14, core earnings would be Bt252m, down by 19% YoY and 49% QoQ. The results were in line with our estimates. 9M14 core profit represents 80% of our FY14 full-year projection.

Results highlights

The YoY core earnings drop was led by a slimmer GM (7.4%, down from 7.9% in 3Q13) and a higher SG&A/sales ratio tied to promotional expenses for the SBO business—3.2% against 2.1% in 3Q13. The QoQ dive was due to a much slimmer GM (12.2% in 2Q14). 

Outlook

A sustained or slightly higher global SB price in 4Q14 will make for hefty QoQ profit growth in 4Q14, but the number will still be down in YoY terms. We estimate 4Q14 core earnings of Bt329m, down 20% YoY but up 31% QoQ. We expect a YoY core profit slump because of a higher SG&A/sales ratio tied to promotional expenses for the SBO business (assumed at 3.5% against 2.6% in 4Q13). Gross margin is assumed at 9.6% in 4Q14 against 7.4% in 3Q14. 

What’s changed?

Our FY14 net and core profit forecasts stand unchanged at Bt1,595m and Bt1,647m, respectively.

Recommendation

We expect TVO to deliver YoY earnings drops for 4Q14 through 1H15, squeezed by a slimmer GM (the prevailing global soybean price downtrend). Our SELL rating stands.