The share price of North East Rubber Public Company Limited (NER) rose ฿0.20/share or 3.33% to ฿6.20/share with a trading value of 303 million baht as of 10:55 local time in Thailand on April 30, 2021.
Phillip Securities (Thailand) stated in the analysis that NER’s net profit direction in 1Q21 is better than the same period last year following a 41% improvement in sales volume after the expansion of new plant capacity. The company, however, was also hit by a substantial increase in freight, delivering deliveries of about 10%, resulting in a lower than previously expected sales volume of about 90,000 tonnes.
Phillip Securities remained confident that the full -year sales will continue to meet the company’s target of over 400,000 tons. Although in the first half of the year, the sales volume may be slightly lower than the target. At the same time, the trend of rubber prices continued to improve and the overall outlook of the recovery of the Chinese economy will support the revenue to increase.
Meanwhile, KTBST Securities (KTBST) maintained a BUY rating on NER with a target price of Bt7.00, which is pegged to 2021E PER of 9.0x (+1 SD above its 3 yr average). KTBST forecast 1Q21E net profit to skyrocket +449% YoY but to decline 22% QoQ to Bt329mn.
A remarkable growth YoY would contribute to 1) higher sales volume, 2) an increase in average TSR price, and 3) a gain of Bt21.0mn from the insurance claim for the fire incident. A decline QoQ would blame lower sales volume, despite higher gross profit margin. Sales volume is forecasted to increase +40% YoY but to drop 28% QoQ to 90,000 tons. Average selling price is expected to increase YoY, QoQ after SICOM’s average TSR price increased +25% YoY, +8% QoQ to USD167 cents/kg. Gross profit margin would come in at 11%, lower vs. 13.5% in 1Q20 due to a change in cost structure but higher vs. 9.3% in 4Q20 on higher average selling price.
KTBST maintained 2021E/22E net profit forecast at Bt1.43bn (+67% YoY)/Bt1.71bn (+20%) as 1) gross profit margin is expected to improve on a still high rubber price, and 2) sales volume should continue to increase after NER has expanded its production capacity to 465k tons/year since 3Q20. We see upside potential, as sales volume may exceed our forecast given the company’s sizable order backlog and plan to ramp up capacity by 50k tons in 3Q21E.