ZIGA Surges 6%, Analyst Rates “BUY” with TP of ฿7.15, Expecting a Record Quarterly Profit

The share price of Ziga Innovation Public Company Limited (ZIGA) rose ฿0.30/share or 5.66% to ฿5.60/share as of 15:10 local time in Thailand, with a trading value of 70 million baht.

Maybank Kim Eng Securities (Thailand) (MBKET) has given a “BUY” recommendation on Ziga Innovation Public Company Limited (ZIGA) with a target price at ฿7.15/share.

MBKET expected a new record quarterly profit since IPO at 44 million baht (44.7% QoQ 54.5% YoY), driven by pre zinc steel products that are a substitute for traditional black steel 2H21 will begin to see the clarity of the franchise pre zine steel outlet and closed system hemp greenhouse.

Pre-zinc steel demand continues to increase from all customer segments while residual orders from 1Q21 also contributed in this quarter. Moreover, new high-margin products such as pre-zinc water pipes (Daiwa brand) are also becoming more active. MBKET expects total gross profit margin to bounce back to 26.5% QoQ vs 23.4% in 1Q21 and just 15.4% last year. Regarding the FX loss of 9.6 million baht last quarter, management stated they will be more careful by using more financial instruments to cover almost all of the transactions so they will play a less significant role in this quarter.

ZIGA will launch the Pre-zinc steel outlet franchise as planned in July. They plan to open 10 branches in August, out of the target of 60 this year. In addition to the company receiving an upfront fee, the steel sales generated in the outlets will support the total sales by around 10%. While the pre-zinc steel used in the hemp greenhouse is currently in the process of bidding with many operators. Both of which will create an upside to our earnings forecasts for this year by 3% and 44%, respectively (read analysis published on 16 Apr 20 “2020 turnaround, 2021 moving forward”).

MBKET maintains its earnings forecast with a growth of +42.2% YoY, excluding both upsides until MBKET sees the actual earnings. Although the 16.1x P/E21F may be higher than the sector’s 10x as the sector has benefited mainly from rising steel prices, ZIGA has a unique capability that looks better. Notice that it has 350bps higher NPM than the group and has 2nd consecutive year of profit growth momentum, and is currently trading only 0.38x PEG. MBKET also found that ZIGA-W1 looks attractive because in addition to staying “in-the-money” status (1:[email protected]), the theoretical value of the Black Schole Model of 4.10 still gives 17% upside. And if ZIGA share price runs into its TP, the theoretical price of ZIGA-W1 will be up to 5.75 baht.