FRIDAY, March 29, 2024
nationthailand

Eastern Polymer Group

Eastern Polymer Group

Earnings continuing to move up BUY

Eastern Polymer Group Plc (EPG)
  
The excellent 1QFY17 (April–June 2016) is not going to be an isolated case – we expect EPG to continue to report earnings growth both YoY and QoQ, backed by its strong presence in the automotive business, operational turnaround at TJM and new production line for its plastic packaging business. FY2017 (April 2016–March 2017) is shaping up to be another strong year: we forecast a new high of Bt1.8bn for core earnings, growth of 39% YoY. We BUY with TP at Bt18/share. 
 
Positive tone, better operations. At EPG’s analyst meeting, the overall tone was positive, particularly for its automotive and packaging businesses. Highlights:
 
 Automotive business (Aeroklas: ARK): Excluding TJM, the automotive accessories business in Australia, ARK reported 1QFY17 revenue of Bt771mn, up 40% YoY and 11% QoQ, driven by strong growth of high-margin products, specifically side-steps and canopies. Side-step production will continue to grow and will continue to be the chief driver, with orders in hand for 1mn side-step sets in FY2016-21. ARK has a couple upsides in the wings: new orders to produce parts for pickup trucks, expected this year, and an M&A opportunity. With the introduction of new products and no more costs related to acquisition and restructuring, TJM is expected to breakeven or deliver a small profit this year. We see this as important for EPG’s earnings growth since TJM contributed a loss of ~Bt50mn in FY2016.
 
 Packaging business (EPP): Management reports that EPP’s revenue is picking up with positive YoY growth in July–August after being flat in 1QFY17. Gross margin is still healthy at above 30% (1QFY17 was at 30.7%) supported by production efficiency and low plastic price, its raw material; QTD average plastic price was down 6% YoY and flat QoQ. New machinery (EPP phase 2) is now fully installed and production is expected to start this quarter. Higher productivity with advanced technology at EPP phase 2 will help boost revenue and gross margin over the long horizon. Management believes running EPP phase 2 at full capacity will lead revenue up to reach Bt4.0bn (+56% from EPP’s FY2016 revenue). 
 
 EPG will spend Bt990mn in FY2017-18: Bt280mn on its insulation business (Aeroflex: ARK), Bt400mn on ARK and Bt310mn on EPP. 
 
Maintain BUY, TP Bt18/share. We see EPG as an earnings play and FY2017 (April 2016–March 2017) is shaping up to be another good year for EPG with core earnings expected to reach a new high of Bt1.8bn, growth of 39% YoY. Short-term catalyst is continuing earnings uptrend with YoY and QoQ growth in 2QFY17 (July–September 2016) backed by strong operations in the automotive business, operational turnaround at TJM and new production line at its plastic packaging business. 

 

nationthailand