Maybank Kim Eng (Maybank) reiterated “BUY” on Sabina Public Company Limited (SABINA) with a revised target price up from ฿24.30/share to ฿25.00/share due to better-than-expected sales, both offline and non-store retailing (NSR) sales.
Maybank revised up its SABINA 2020-2021 earnings forecast by 8% and 3%, respectively to reflect better-than-expected sales, both offline and NSR sales, while profit margins are likely to recover from an increase in the proportion of imported products, which are lower-cost than own production. The 4Q20 profit is expected to increase QoQ, but still decline YoY before resuming solid growth in 2021.
The proportion of NSR sales tends to increase from 10% in 2019 to 20% in 2020 and 21% in 2021. Maybank estimated this year’s profit to fall 31% before recovering 35% in 2021 based on sales growth and gross margin recovery from more imported products to replace owned production, which reduced capacity by 25% since 2020.
Branded sales have recovered in 4Q20, coupled with a launch of new product Level Bra. The Shop Dee Me Kuen programme should help drive sales towards the end of the year. While the 11.11 campaign is well received, with SABINA being Lazada’s best-selling brand for the fashion segment. In addition, the 12.12 campaign is likely to deliver solid sales continuously.
Maybank also expected profit margins to recover from an increase in the proportion of imported products, which are lower-cost than that of their own production. Employee expenses have declined as the number of employees decreased 473 or 10.4% YTD. Maybank therefore estimated that 4Q20 earnings will grow QoQ but slightly drop YoY.
SABINA focuses on selling via NSR channel which has more room to grow, with a 3-year target of 30% of total sales. Meanwhile, offline sales will remain important and generate key sales for the company despite the closure of 10-20 stores next year. SABINA has a strong financial position, with only 0.1x net D/E ratio. With a CAPEX of less than THB10m / year, SABINA will be able to pay a consistent dividend, with a yield of about 5%.
Risks: 2nd wave of COVID-19 epidemic, slow economy, higher production costs, problems with importing the product.