Analyst Expects TMT’s 4Q20 Profit to Record 3-Year High, Giving “TRADING BUY” at ฿7

Maybank Kim Eng (Maybank) Has given “TRADING BUY” recommendation on TMT Steel Public Company Limited (TMT) at a target price of ฿7/share due to a rising steel prices, expecting to outperform the industry.

 

TMT’s 4Q20 profit is forecast at THB183m, (+17% QoQ, +789% YoY), the best in 3 years on the back of higher steel prices. TMT sells steel as a solution to the manufacturing industry while operating as a comprehensive steel service center. It is expected to outperform the industry. Thanks to rising steel prices, Maybank lifted its forecast for TMT’s 2020 earnings to THB547m, soaring 138% and 2021 profit of THB607m, a 11% growth, offering dividend yield of 8.5-9.4%. Reiterate “TRADING BUY”, U/G TP to THB7.

 

4Q20: best earnings in 3 years on rising HRC prices

Prices of hot rolled coil (HRC) in China rose sharply during Nov to 11 Dec, rising from CNY3,973/tonne to CNY4,562/tonne, a 14.8% rise. This is because China’s economy is recovering and the country consumes steel by 55% of the whole world. This is expected to boost steel prices in Asia, including Thailand. 

 

TMT’s sales price in the first week of Dec rose to THB20,930/tonne from the average price of THB19,900-19,940/tonne in Oct  Nov. Although 4Q20 is the low season with the long holidays and sales volumes are expected to drop to 185,000 tonnes (-6.5% QoQ, -4.8% YoY), gross margins tend to improve to 10% from 9.4% last quarter and 4.9% the previous year. Maybank forecasts 4Q20 profit of THB183m (+17% QoQ, +789% YoY), best in 3 years.

 

Growth momentum continues in 2021, U/G forecast

Selling steel as a solution to the manufacturing industry with a comprehensive steel service center, TMTs market share continued to increase to 18.7% in 2020 from 16.2% in 2019 and 13.4% in 2018. In 2021, TMT management set a sales volume target of 800,000 tonnes, growing 5-6%, with the average steel price increasing to about THB20,000/tonne (+4% YoY). 

 

In total, sales are forecast at THB16b, jumping 10% in 2021. To be in line with management estimates and the current steel price situation, Maybank raised its forecast with estimated profit of THB547m in 2020, soaring 138% and THB607m profit in 2021, up 11%.

 

Reiterate TRADING BUY, U/G TP to THB7

TMTs current share price is trading at 8.5-9.4x P/E FY20-21, offering a good dividend yield of 8.5-9.4%. TP is raised from THB5.8 to THB7 based on the 10-year average forward P/E of 10x from adjusted estimate. Maintain TRADING BUY for dividend.

 

Risks: Volatile steel prices worldwide. Oversupply. Debt-to-equity ratio is rather high.