Eastern Polymer Group

Eastern Polymer Group Plc  

4QFY16 (Jan – Mar 2016) net profit was Bt348mn (Bt0.12/share), up 94% YoY but down 2% QoQ. Excluding FX gain/loss gives a core profit of Bt353mn, up 70% YoY and flat QoQ, meeting SCBS estimates but missing the market’s expectation of Bt430mn by 18% because of weaker equity income. The jump in core earnings YoY came from rising revenue and stronger gross margin. On a QoQ basis, lower revenue and equity income was offset by a higher gross margin, resulting in flat core earnings growth. For FY2016 (Apr 2015 – Mar 2016), net profit was Bt1.4bn, jumping 123% YoY. 

 

Dividend Bt0.12/share. EPG announced a DPS of Bt0.12, implying 1% dividend yield.

 

XD is August 2, 2016 and payment date is August 24, 2016.

 

Highlights for 4QFY16 and FY2016

 

 Revenue was Bt2.2bn in 4QFY16, up 21% YoY but down 5% QoQ. By business, the automotive business (Aeroklas: ARK) showed the strongest revenue growth at 20% YoY (but down 8% QoQ) thanks to steadily rising production of its side-step. Revenue from TJM, the automotive accessories business in Australia, jumped to Bt221mn from Bt71mn in 4QFY15 (and increased 3% QoQ). The insulation business (Aeroflex: AFC) had revenue growth of 8% YoY (but a slip of 5% QoQ). Plastic packaging (EPP) revenue increased 13% YoY (but slid 2% QoQ). FY2016 revenue was Bt8.8bn, up 27% YoY.

 

 Blended gross margin in 4QFY16 was the highest of the year at 36.4%, up from 28.5% in 4QFY15 and 31.0% in 3QFY16, driven by all businesses. ARK showed the best gross margin improvement at 33.4% (up from 21.9% in 4QFY15 and 27.5% in 3QFY16) due to higher revenue from high-margin products and consolidation of TJM. EPP’s gross margin was 31.7% (up from 24.9% in 4QFY15 and 28.1% in 3QFY16) from stronger revenue, no repeat of the 3QFY16 year-end promotions or rebates for clients and benefit from falling plastic price (-9% YoY and -2% QoQ on average). AFC’s gross margin was 45.3% (up from 39.3% in 4QFY15 and 39.1% in 3QFY16) due to more revenue from high-margin products. 

 

 Equity income was Bt55mn in 4QFY16, down 35% YoY and 25% QoQ, mainly from lower contribution from Tokai Eastern Rubber (Thailand) Ltd., whose operations were eroded by weak auto production in Thailand. In FY2016, equity income was Bt249mn, up 9% YoY.

 

 Strong financial health at 0.2x interest-bearing debt to equity as of March 2016. 

 

Maintain BUY. We maintain our BUY call on EPG with TP at Bt18/share. We see EPG as an earnings play with strong core earnings growth ahead at Bt1.8bn (+39% YoY) in FY2017 fuelled by rising production of high-margin side-steps, TJM’s turnaround from a loss to a profit and innovative new products. We will provide an update on the company outlook after its analyst meeting on June 1, 2016.