Target price : Bt15.20
Recommendation : BUY
Closing Price (13 May 09) : Bt 12.40
1Q09 profit tops forecasts
- Sales slackened as a result of falling average selling prices but sales volume upped on a YoY basis. The operating performance was dragged down by high-cost inventory.
- Rebounding commodity prices would drive earnings during the remaining course of the year. The better-than-expected first-quarter operating results also prompt us to raise our 2009 earnings view for TVO by 22%.
- We upgrade our rating for TVO to 'BUY' and lift our price target to Bt15.20/share.
1Q09 profit tops forecasts
Soybean cooking oil maker TVO posted a net profit of Bt321m in 1Q09. The profit figure was 45% weaker than the Bt585m it achieved in the same quarter in 2008 but the results marked a turnaround from a net loss of Bt920m in the prior quarter, up as much as 135% QoQ. Sales for the quarter rank in at Bt5,203m, down 10% YoY as a result of a 10% YoY drop in average selling prices but up 10% QoQ helped by higher sales volume of soybean meal and oil. High-cost inventory remained a drag on profitability. Margins shrank as much as 4.5% but the pace of contraction was slower than a 11.9% shrinkage in the prior quarter. SG&A expenses retreated 23% YoY. TVO continued to report operating losses of Bt338m in this quarter, but losses narrowed from Bt600m in the prior quarter. Because of continued operating losses, effective tax rate therefore fell as much as 98% YoY. Higher product prices also resulted in a reversal of Bt641m in inventory write-downs.
Soaring commodity prices to be a driver of earnings for the rest of the year
Rebounding commodity prices would remain a driver of earnings for TVO during the remaining course of the year. Especially in the second quarter of 2009, the farmer's strike in Argentina, the world's third-largest soybean grower, limiting its exports in a year-long dispute with the government over an export tax would drive sales volume higher on a YoY basis. TVO should also benefit from rising selling prices. The better-than-expected first-quarter operating results also prompt us to raise our 2009 earnings view for TVO by 22%. The new estimate assumes a modest fall in sales volume and a drop of 14% YoY in average selling prices. We nudge up our 2009 sales forecast to Bt21,727m, down 8% YoY. Margins are expected to be weaker than a year earlier as a result of poor margins in 1Q09. We revise our 2009 net profit forecast for TVO upward to Bt1,189m, up 59% YoY.
Upgrade to 'BUY' with new price target of Bt15.20/share
We upgrade our rating for TVO to 'BUY' from 'HOLD.' The upgrade reflects our more optimistic view on its earnings prospects over the remaining course of the year, benefiting from rising commodity prices and the better-than-expected operating results. We also lift our 2009 price target to Bt15.20/share, based on a P/E of 8x.
By Phillip Securities (Thailand) Plc. on May 14, 2009
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