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Title STK_BUY_TP 23,200 VND_ Difficulty has gone_BSC Company Update_26022019
Report Type Phân tích công ty
Source BSC
Bussiness STK
Detail Date : 03/04/2019
Total pages : 6
Language : English
File Type : .PDF
FileSize : 428 Kb
Download: 139
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Short Content

Valuation
We recommend BUY for STK stock with the target price for 2019 of VND 23,200/share (+ 27.5%) based on P/E valuation method with a target multiple of 7x (equivalent to the industry average, but lower than STK's historical value of 8x). We assess STK's current valuation to be relatively cheap compared to our forecasted EPS 2019.

Business results forecast
BSC estimates that STK's 2019 net revenue will reach 2,571 billion (+ 6.8% YoY), the gross margin will rise to 14.6%. Our assumptions are (1) unit selling price of each kind of yarn remains stable, but the average selling price will increase by 1.2% thanks to changing product structure; (2) average price of resin -1% YoY following the downtrend of oil prices and thanks to increase portion of recycled resin. Operating profit (EBIT) will probably reach 271.5 billion (+ 10.6% YoY). Profit after tax is forecasted at 227.4 billion (+ 26.6% YoY), equivalent to EPS = 3.313 VND/share, P/E fw = 4.8x.

Investment highlights
(1) Demand for polyester yarn continues to grow. The world fashion market size is forecasted to increase at a rate of 3.5% -4.5% in 2019; the trend of shifting to using synthetic fibers is superior to cotton (the proportion of polyester fiber increased to 37% in 2017 compared to 30% in 2010, the growth rate of consumed volume in the period of 2010-2017 was 6.6%).
(2) Trang Bang 5 project (+3,300 tons; + 5.5% of capacity) will come into commercial operation in 2019 will help increase production.
(3) Increasing the proportion of recycled yarn (of which price gap is about 20-30% higher than the normal products) helps improve profit margin.

Investment Risks
(1) Fluctuations in raw material prices: The resin expense accounts for 70% of the total cost and is affected by oil price, so changes in PET chips price will affect the selling price and business results of the company.
(2) Competition risk: we assess the level of competition is average, because long synthetic yarn products are not distinguishing.
(3) Exchange rate risk: The company has a relatively balanced level between revenue and cost in USD, so it can limit exchange rate risks. Unrealized  loss from debt in foreign currency is insignificant (BSC estimates 1% increase of VND/USD exchange rate, STK will have to record a loss of 3.1 billion VND).

Company updates
(1) Business results 2018: Net revenue reached VND 2,408 billion (+ 21% YoY); net profit of VND 179.6 billion (+ 80.3% YoY), equivalent to EPS = VND 2,997/share. Dividend is expected to be 15% in cash (equivalent to the dividend yield = 8.3%).
(2) Business plan 2019: Output will increase by 7% after Trang Bang 5 factory running at full capacity; 2019 revenue is likely to be VND 2,603 billion (+ 8.1% YoY), EAT of 199.5 billion (+ 11.02% YoY).
(3) New investment project: Color yarn project (4,000 tons, CAPEX of 200,000 - 300,000 USD) is expected to be invested in 2H2019.