The share price of Sri Trang Agro-Industry Public Company Limited (STA) continued to surge in the afternoon session as the COVID-19 pandemic spurred global demand for rubber gloves.
As of 14:46 local time in Thailand, STA rose ฿1.40/share or 6.70% to ฿22.30/share. The highest price was ฿22.70/share, while the lowest was ฿21.30/share with a trading value of 2,284 million baht.
KTB Securities (Thailand) (KTBST) has maintained the recommendation of Sri Trang Agro-Industry Public Company Limited (STA) to “BUY” with an upgrade target price of ฿27.00/share.
KTBST reiterated a BUY rating on STA but raised the target price to ฿27.00 (from ฿19.00) following 2020E earnings forecast upgrade while maintained the target PER at 14.0x (the mean of its 5-yr level).
KTBST was positive toward STA’s earnings outlook following inquiries with the company. First, demand for rubber gloves remains strong given massive orders until mid-2021. Second, the average selling price for rubber gloves has increased by 5% per month in 2Q20 due to tight supply. Last, the baht weakness also lends support to earnings growth.
In addition, KTBST raised the 2020-21E net profit forecast by 39-93% as revising up the gross profit margin assumption to 10.9% from 9.9% earlier and capacity utilization rate to 95% from 90%, which should increase rubber glove output to 28bn pieces.
STA’s share price outperformed the SET Index by 49% in three months as the COVID-19 pandemic spurred global demand from rubber gloves. KTBST believed downside risk from the current share price will be limited given 1) the brighter 2Q20E earnings outlook, 2) the massive orders for rubber gloves until mid-2021, and 3) an attractive valuation, which currently trades at 2020E PER of 10x, below its 5-yr average level of 14.0x.