STARK’s 16.6% EBITDA Margin in 1Q21 Proves No Impact from the Higher Copper Price

The dispute regarding higher copper and aluminium prices that could potentially make a significant impact on EBITDA margin of Stark Corporation Public Company Limited (STARK) seems to have been settled after the company reported an outstanding performance in 1Q21.

 

Copper and aluminium are key raw material for the production of STRAK, and when the price of both material started to pick up at an incredible speed (actually since last year), the cost for producing any product infused with these materials should become higher as well, logically.

 

Average LME Copper cathode price in March 2021 was approx. 9,000 USD per ton, increased from approx. 8,000 USD per ton in January 2021. The price has been pickin up since March 2020 when the price hit its 5-year low at 4,700 USD per ton. Currently, LME Copper traded at 10,719 USD per ton.

 

Prior to the earnings announcement, STARK released a publication to explain key questions from shareholders and investors regarding the matter, saying that the company was slightly affected by the situation.

 

The company stated that the company has received a Made-to-Order basis which is approximately 80-90 percent of the total revenues, in which such orders have a specific design of the wire and cable according to customer requirements, meaning that the ordering product has been clearly identified to the buyer at the beginning.

Meanwhile, the company has a policy to pass through or cost-plus strategy in which the company secures raw material cost and ordering volume, which will prevent the speculation on raw material fluctuation and with no speculation.

 

Even with these explanations, some investors and shareholders still would not sway up until the release of STARK 1Q21 financial statement later in the day.

 

Yesterday, STARK reported a net profit of 438 million baht for its 1Q21 operations, representing an increase by 67% from a net profit of 260 million baht in 1Q20.

 

More importantly, adjusted core EBITDA margin increased to 16.6% in 1Q2021 from 14.0% from 1Q20 due to the focus on the high margin product as well as the policy to effectively control costs and expenses, and systematic management of the company.

 

This is the number that will cement STARK’s explanation on the raw material situation, saying that the company was slightly affected by it. Even Credit Suisse also stated that this should provide further evidence of management’s claim that the higher copper and aluminium would not have any significant impact on STARK’s EBITDA margin due to an effective pass-through mechanism.

Credit Suisse maintained “Outperform” rating on STARK after the earnings announcement and reiterated target price at Bt6.50 per share.