Target price : Bt11.30
Recommendation : BUY
Closing Price (3 March 09) : Bt 8.90
Results were better than market has expected
- Sales increased by 20%, while net profit was up sharply YoY owing to higher profit generating capability. Such was despite extra loss as high as Bt806m.
- The company declared Bt1 dividend per share for 2008 performance.
- We have revised up 2009 bottomline by another 8% form its previous projection.
- Although major clients in the automotive sector have been hard hit by slowing economic conditions, we consider the current product prices have already reflected the issue. The stock is currently trading on 5.5 prospective 2009-P/E, while also giving a high dividend yield. In view of better-than-expected results, we have upgraded our rating from 'HOLD' to 'Accumulate'.
Results were better-than-expected
STA reported Bt627m net profit for 2008, increasing by 479% YoY from a profit of only Bt108m. For the fourth quarter of 2008, there was a net loss of Bt405m, which increased from a YoY loss of Bt263m but decreased when compared with Bt227m net profit in the previous quarter, the main reason which was due declining rubber prices by 47-48% QoQ. Sales totaled at Bt60,134m, increasing by 20% YoY along with an average of 29% growth in rubber prices. Sales volume, however, dropped 6% YoY. Gross profit margin rose to 6% form 4.3% with higher rubber prices but for the fourth quarter alone, gross margin deteriorated to 6% form 6.8% as rubber prices have turned weaker. SG&A charges increased by 12% YoY, while there were higher contributed profits from invested entities. For the year, STA also booked various extra items including loss from asset valuation of Bt122m, decline in rubber inventory value of Bt686m and FX loss if Bt12m. Interest and tax burdens both increased.
The company declared Bt1 dividend payment
For the year 2008, STA announced Bt1 dividend/share, equivalent to 32% in payout ratio. XD sign will be posted on Mar 17, 2009 and payment on May 28. The dividend translates to an attractive yield at over 10%.
We have revised 2009 projected profit up by 8%
In view of better-than-expected 2008 results, coupled with expected recovery of its first quarter performance in line with rebounding rubber prices, we perceive there would be no sizeable booking in inventory as in the prior year. We roughly estimated sales for 2009 at Bt35,676m, down by 41% YoY along with falling sales volume. Rubber prices, meanwhile, are projected to decline by 38% YoY. We also projected gross profit margin to be weaker YoY. In sum, net profit would stand at Bt324m, down 48% YoY but increasing from our previous forecasts by around 8%.
Rating has been upgraded to 'Accumulate'
Although we expect the automotive sector to be hard hit by the economic slowdown, we consider rubber prices have already fallen quite far thereby largely discounting the negative news. The stock is currently trading on 5.5x P/E and with high dividend yield. As such, we have upgraded our rating from 'HOLD' to 'Accumulate'. The fair value for 2009 now stands at Bt11.30 based on around 7x P/E.
By Phillip Securities (Thailand) Plc. on Mar 4, 2009
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