NER: When Net Profit Outpaces Revenue

It was within the expectation that the 2020 earnings of North East Rubber Public Company Limited (NER) came out at 858 million baht, representing an increase of 59.35% from 538 million baht in 2019.

 

NER’s total sales revenue was at 16,349 million baht, increased 25.71% from 13,005 million baht in 2019, which is in line with an increase in rubber price. The company also handed out a generous dividend payment of Bt0.15 as well.

 

What makes NER interesting is the fact that the company reported only a 25.71% increase in revenue, but its net profit grew as much as 60%, which is not common in the stock market whereas the revenue and profit often grow at the same pace.

Without a one-time gain shown in the financial statement that means the increase in net profit was contributed by NER’s operating results.

 

Primarily, the main factor would be a significant increase in rubber price from 35-45 baht early 2020 to around 70 baht in late 2020, which could be the result of lower supply when rubber-glove producers require more material as they are pumping their productions amid rising demand for rubber gloves.

Meanwhile, NER has had a huge stockpile of rubber since late 2018 at a lower price, resulting in a wider gross profit margin in 2020, coupled with a new production plant, creating an economy of scale to boost its gross profit by 1.95% to 1,726 million baht, representing a margin of 10.56%.

The company recorded a sales volume in 2020 at 358,820 tonnes, increased 78,703 tonnes from 280,117 tonnes in 2019.

 

Analysts expected NER to extend its gain for the next 2-3 years, estimating a net profit of 1,433 million baht and 1,715 million baht in 2021 and 2020, respectively, representing an increase of 67% and 20%, respectively.

Mr. Chuwit Jungtanasomboon, Chief Executive Officer of NER, estimated a revenue of 22,000 million baht in 2021, seeing constant demand for rubber from both domestic and international.