Analysts Upgrade STGT’s TP to Bt125, Following Strong Global Demand for Rubber Gloves!

Analysts upgraded the target price of STGT to as high as ฿125.00/share driven by resilient rubber glove demand during the COVID-19 pandemic to largely boost its earnings during 2020-2022.

 

Following analysts’ meeting and earnings revision of STGT yesterday, KGI Securities has given an “Outperform” rating on Sri Trang Gloves (Thailand) Public Company Limited (STGT) with an upgraded target price at ฿125.00/share.

KGI stated that STGT disclosed that shipment lead times for its natural rubber (NR) and nitrile rubber (NBR) gloves have been extended to 16 and 22 months, respectively, at the end of August 2020, from 9 and 12 months at the end of June 2020. Given that pre-COVID-19 lead time was 2 months, the current market shows it is a seller’s market, which should allow producers to consistently raise their average selling price (ASP).

As such, STGT guided that its blended ASP should rise by 70% QoQ in 3Q20 and by another 12% in 4Q20. Additionally, Malaysian Rubber Glove Manufacturers Association (MARGMA) and STGT forecast that global glove demand would rise at a compound annual growth rate (CAGR) of 17.6% during 2019-2022.

Nevertheless, STGT has revised its expansion plan to be ahead of its original schedule. The company currently targets to increase its installed capacity to 70bn pieces in 2026, compared to its original plan of 2028. This is so the company can capture potential solid demand. By 2026, STGT plans to add seven production facilities with combined installed capacity of 38bn pieces/year. The company estimates a CAPEX budget in the range of Bt1.8bn-Bt7.4bn during 2020-2022.

 

KGI revised up STGT earnings estimates by 59.9%/37.3%/37.1% during 2020-2022, largely to incorporate higher ASP and sales volume. KGI adjusted up its sales revenue forecast by 21.2%-24.6% over the next three years, reflecting the more aggressive expansion plan. The security company also inched up GPM estimates to a range of 19.9%-31.2% during 2020-2022, up from 18.5%-26.8%, mainly on the back of higher ASP.

Based on KGI’s new earnings forecast, it derived a new 2021F target price of Bt125.00, pegged at 32.5x, +1.5 STD above the long-term historical average PER of its closest peer. KGI believed that STGT is currently riding a supernormal growth cycle, thanks to solid rubber glove demand during the COVID-19 pandemic.

Lastly, lower-than-expected demand boost from the COVID-19 outbreak, the sooner-than-expected mass vaccine for COVID-19, lower-than-expected average selling price (ASP), and higher-than-expected raw material prices are major factors that could reflect to a downside risk of STGT.

 

Aside from KGI, Krungsri Securities (Thailand) (KTBST) also reiterated its “BUY” rating on STGT after the analysts meeting with an upgraded target price from ฿100.00/share to ฿125.00/share.

KTBST had a positive outlook on STGT as the demand for rubber gloves increased to 360,000 million pieces (+20% YoY), while STGT would increase its ASP in 3Q20 by 70% QoQ (+40% previously estimated by KTBST) and another 10% in 4Q20.

More importantly, the company would recognize more income from Europe and the U.S. while the development of vaccines did not affect STGT as orders were not cancelled and the productions were fully booked until the end of 2021.

KTBST revised up its 2020 earnings by 37% to 5,747 million baht, increasing 810% YoY and the 2021 earnings to 6,132 million baht, increasing 7%. The new target price of Bt125.00 pegged to a de-rate targeted PER of 29x or +1SD above the 5-year average PER of peers (4 other top producers).