Kiatnakin Phatra Securities upgraded the rating on shares of SCG Packaging Pcl. (SET: SCGP) to “Buy” from “Neutral,” and as the stock has corrected 7% in the past month and 34% year-to-date, now is a good opportunity to buy.
The brokerage firm stated that SCGP’s valuations became more attractive with EV/EBITDA of 10x on 2023E and 8x on 2024E, which is at the low end of its historical range, and its premium valuations versus global peers have fallen to close to par.
SCGP share price target remains unchanged at THB45.0.
KKPS anticipates a sequential earnings recovery for SCGP, which would limit further earnings downgrades. In 2Q23, sales volume is likely to grow moderately QoQ from growing F&B in the domestic market. While product prices continue to trend down during the April-June period, the impact should be cushioned by lower costs.
As for demand, KKPS anticipates a mixed picture in the region, with stronger demand in Thailand and Vietnam and a seasonal decline in Indonesia.
Kiatnakin Phatra Securities predicts that the lower AOCC and coal prices along with lower freight rates will gradually pass through improving operations in 2Q23 and more so in 2H23. Furthermore, SCGP plans to focus on higher-priced products, i.e. increasing the proportion of dissolving pulp sales volume to mitigate the impact from lower pricing. KKP estimates minimal changes in product prices to take into account the new capacity in the region this year.
