Kiatnakin Phatra Securities (KKPS) lowered its price target for SCG Packaging Pcl. (SET: SCGP) to THB51.00 from THB57.00, while maintaining its “Neutral” rating, to reflect earnings outlook reductions for 2023 and 2024 amid weakening product prices.
Weaker product prices, especially for packing paper and short-fiber pulp, have led analysts at Kiatnakin Phatra to reduce their SCGP’s earnings projections for 2023 and 2024 by 11% and 9%, respectively. The brokerage said that while a recovery in demand is on the way, product prices have fallen more quickly than anticipated.
Kiatnakin Phatra, in its stock analysis published on Wednesday, noted that the company’s operations seem to have bottomed out, but that earnings improvement is likely to be slower than market anticipation.
Due to a year-to-date decline of 21%, the SCGP’s share price has fallen below the average forward EV/EBITDA of 11x.
KGI Securities and Daol Securities followed Kiatnakin Phatra in lowering their price target for SCGP on the back of a downgraded earnings outlook.
KGI Securities reiterated a “Neutral” rating with a lower target price of THB50.00. SCGP should earn a 1Q23 net profit of THB909 million (-45% YoY, +102% QoQ). With the rebound coming at a slower-than-expected pace, investors are likely to tone down their estimates. Currently, KGI forecasts core profit to rise 3% YoY in 2023 and 21% YoY in 2024. Though analysts at KGI believe most negatives are priced in, they expect the share price to be range bound on downgrade flows and investors taking a wait-and-see stance.
Meanwhile, Daol Securities maintained a “HOLD” rating on SCGP and cut a target price to THB48.00 from THB53.00. Daol forecast SCGP’s 1Q23 core profit to slump -42% YoY, but surge +60% QoQ to THB1.0 billion. A drastic drop YoY may be blamed on a reduction in selling prices and a narrower spread of packaging paper due to a supply glut and heating competition in ASEAN. A significant increase QoQ may contribute to higher sales volume in the packaging paper business (43% of overall revenue) after China has relaxed its lockdown restrictions, and a lower cost of paper scrap, although the spread of packaging paper narrowed further -6% QoQ because selling prices felt the pain of supply glut amid sluggish demand.
