STK – Robust performance despite supply chain disruption – Update

• STK posted VND1,577bn (+29.0% yoy) in 9M21 top line and VND203bn (+171% yoy) in bottom, fulfilling 62.1% and 70% of our full-year forecast.
• We expect STK is a beneficiary of the anti-dumping tax on China and other foreign yarn manufacturers effective since Oct-21.
• Reiterate ADD rating with higher TP of VND72,500 following NP CAGR of 37.0% in FY21-23F.

Solid performance in 3Q21

STK showed positive results in 3Q21 despite severe COVID-19-related supply chain disruptions in southern Vietnam. STK posted 3Q21 revenue of VND469bn (+43.1% yoy) and net profit of VND62.4bn (+212.2% yoy). The 3Q21 performance partly came from 1) low base in 3Q20, 2) STK prioritizing its capacity for orders of premium products (recycled yarn and high-quality virgin yarn), which bolstered its gross profit margin. Overall, 9M21 revenue and NP achieved VND1,577bn (+29.3% yoy) and VND203bn (+171.2% yoy), fulfilling 62.1% and 70.4% of our full-year forecast.

Change in FY22/23F earnings forecasts

We increase STK’s revenue forecast in FY22/23F by 10.8%/8.3% vs. the previous report mainly underpinned by gaining more market share from the domestic market. We also raise GM in FY22/23F by 0.3%pts on the back of the assumption that the Unitex factory phase 1 will operate commercially in 1Q23 and operate at 80% capacity in FY23. Furthermore, anti-dumping tax on China and other competitors support for STK improved GPM in FY22-23F. As a result, STK’s net profit in FY22/23F increased by 12.9%/17.4%.

Is STK still attractive after 195% ytd price increase?

First, we expect STK’s NP to grow 10.7% yoy in 4Q21 and 18.2% yoy in FY22F as the recycle yarns segment will particularly benefit from the demand recovery of the domestic market. Second, STK is one of the yarn manufacturers benefited from anti-dumping tax on yarns imported from China and India, which is imposing by the Ministry of Industry and Trade. Last, we expect phase 1 of the Unitex factory to commercial operate in 1Q23F and operate at 80% capacity in 2023F with 28.400 tons of production volume. We think that STK’s FY22F P/E of 13.5x is still attractive with a company with NP CAGR of 37.0% in FY21-23F.

Reiterate ADD rating with higher TP of VND72,500

We revise up our TP by 30.2% following an 12.9%/17.4% upward revision on FY22-23F and higher target FY22 P/E of 13.5x. Potential re-rating catalysts is the more robust growth in the volume of recycled yarn thanks to the rebound in market demand. The key downside risk is the worsening of the Covid-19 outbreak in STK’s domestic markets may hit STK’s performance directly.

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