Hot stock: Sri Trang up 27.2% after posting higher profit, dividend

SHARES of Thailand-based rubber producer Sri Trang Agro-Industry (STA) climbed on Thursday after the company announced a solid set of financial results for its fourth fiscal quarter ended December 2020, and a sizeable dividend. It intends to pay 1.75 baht per share, or the equivalent of S$0.07658 per share.

With this, STA’s total dividend for 2020 stands at 2.25 baht per share versus 0.35 baht in 2019. Investors can expect to receive their dividend payouts on Apr 29. 

The counter opened at S$1.48 on Thursday, and made steady gains over the course of the morning. At 11.30am, the stock had risen 11.5 per cent or S$0.17 to S$1.65. STA then pared some gains to trade at S$1.62 at 11.40am, before recovering back to S$1.65 before the midday break. In the afternoon session, STA shares continued their upward trajectory. The counter closed at S$1.87, up 27.2 per cent or S$0.40.

UOB Kay Hian analyst Thunya Sutavepramochanon noted that STA posted an "impressive" net profit of some 5.5 billion baht (S$243.5 million) for the fourth quarter of FY2020, up from just 74 million baht for the corresponding period a year ago on the back of healthy performances from both its glove and natural rubber businesses.

To recap, STA’s glove-making unit, Sri Trang Gloves Thailand (STGT), completed an initial public offering (IPO) and listed on the Stock Exchange of Thailand on July 2, 2020. From Q3 FY 2020 onwards, STA’s stake in STGT was reduced to 56.2 per cent from 81.1 per cent. 

For FY 2020, STA’s net profit came in at 9.53 billion baht, reversing from losses of 148.5 million baht in FY 2019. The group said this was due to a “record profit” from its glove business, as well as the profitability of its natural rubber business despite the industry slowdown. 

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STA’s topline for the fiscal year grew 25.2 per cent to 75.48 billion baht. While revenue from natural rubber products fell 7 per cent from the previous year, contributions from gloves more than doubled to 30.75 billion baht as the Covid-19 pandemic fuelled glove demand across all geographic markets. 

Citi analyst Megat Fais said in a report that while STA’s midstream business did recover from the previous quarter due to better volume and pricing, the group’s downstream business - through STGT - yet again “stole the limelight”. 

Looking ahead, Ms Thunya said the firm's Q1 earnings for FY2021 will continue to grow on both year-on-year and quarter-on-quarter bases and could reach a "historical peak", driven by higher average selling prices (ASP) of gloves.

Another contributing factor to strong earnings growth in the current year are the healthy gross margins of the natural rubber business, following an uptrend in natural rubber prices that is boosted by recovery in the global automobile industry.

She added that STA plans to start a hemp plantation business in March this year, and STA will have the largest hemp planting area in Thailand. This business, she said, is expected to rake in some 450 million baht in revenue for the group in 2022.

Citi’s Mr Fais, however, warns that STA has been assigned a “high risk” rating as the stock is deemed relatively volatile. “Despite the strong fundamentals, the sector may continue to be perceived as a “pandemic play”. As such, incrementally positive headlines related to vaccine development could lead to profit taking activities and short term volatility,” he said.