Analyst Expects SONIC to Benefit from Exports Recovery in 2021, Giving “BUY” at ฿2.34

Maybank Kim Eng (Maybank) has given “BUY” recommendation on Sonic Interfreight Public Company Limited (SONIC) with a target of ฿2.34/share on growing strong with undemanding valuation. 

 

Maybank initiates BUY on SONIC as there are two turning points in 2021. (1) Net profit base is lifting as it has passed the CAPEX cycle period. With a high sea freight proportion of 65%, which offers high profitability while being high operating leverage, SONIC will benefit greatly from the Thai export recovery in 2021 leading to margin expansion. 

 

(2) New business offering tractor lending started well and became interesting. Maybank sees that 2021 will be a good year for SONIC to harvest what it has invested. The fair price for 2021 is THB2.34/ share, based on 19.1x P/E. Currently, the stock is trading at 13.3x P/ E, with a 43% discount from the sector, despite profit is forecast to be higher than peers by double.

 

Two major turning points in 2021

(1) Net profit base should lift up by 40% from average THB48m in 2017-19 to THB67m in 2021, jumping +22.8% YoY, vs the sectors average of +10.7% YoY after SONIC ended its CAPEX cycle in 2019-2020. Being a high operating leverage with a proportion of up to 65% of sea freight, it will benefit greatly from export recovery. Maybank expects GPM and NPM to expand while ROA, ROE and Div. Yield will be lifted. 

 

(2) New business where it utilises excess liquidity to offer lending for their truckloads to their subcontractors. This not only helps with performance, but also increases 2021-22 profit by 4-8% as well and could become a business model of the high-cost freight forwarder business to work with SMEs.

 

SONIC is trading at only 13.3x P/E21F with a 43% discount, while EPS growth is 1x higher than the sector. However, with smaller profit than the sector, Maybank choses the median between SONIC’s 3-year P/E average (15.0x) and the sectors average P/E21F (23.2x) at 19.1x as a base, a fair price in 2021 is THB2.34/share.

 

Risks

If there is a lockdown in major export partners of Thailand, it will significantly affect SONIC’s transportation volume as SONIC export volume accounts for 90% of the total and fixed assets accounts for 52% of the total vs 10-30% of the sector.