STA Rubber has time to recover, with hopes of a turnaround in the stock price in 2024.

STA has time to recover, hoping for a turnaround in the stock price in 2024. Rubber trading is about to end the industry's downturn. We look forward to the second quarter results

If you still remember, STA or Sri Trang Agro-Industry Public Company Limited is a super stock whose price rises to the highest point quickly. Returns rose during 2021 by more than 200% before gradually rising. It slowed down after the Covid situation resolved.

STA is an integrated manufacturer and distributor of natural rubber. Starting from the initial business of rubber plantations. Medium works: block rubber products fumed rubber sheets, concentrated latex, including end works such as rubber gloves and various end products

But there are signs that the rubber trade will end the recession cycle in 2024. Support the STA share price from falling forward again. This is reflected in STA's share price since the beginning of the year, which has risen by 44.17% as of May 30, 2024.

The main reason is the strong trend in natural rubber prices. Because there is not a lot of new supply. As a result, in the first half of this year the industry faced a shortage of raw materials, and in addition, the adoption of EUDR standards (the law prohibiting the trade of products related to deforestation to Europe) will help support the company's profit margins. . Because Thailand is considered the country that receives the main benefits from such policies. Ability to meet EUDR standards compared to neighboring countries

However, the overall operating results for the first quarter of 2024, the company still recorded a net loss of 329.70 million baht, down from the same period last year which had a net profit of 287.92 million baht due to weak profits in the natural sector. Rubber works.

However, in terms of income and sales volume, it is considered to have improved. With sales and service revenue reaching 23,678 million baht, an increase of 9.1% over the previous quarter. Meanwhile, the normal sales volume increased by 1.3% to 317,872 tons, including the total quarterly sales volume of rubber gloves rose to 10,091 million pieces, continuously achieving a new record.

While the analysis Yuanta Securities He revealed that in the second quarter of 2024, STA is expected to return to profit again within 5 quarters, supported by rising average selling prices. This further reflects the price of rubber in the SECOM market, which is estimated at around 160-165 cents/kg from the Q1/2024 average of 155 cents/kg, and sales volume is expected to stabilize at around 320,000 tons.

In addition, the company will start generating rubber revenue EUDR in the first quarter, which is approximately 15,000 tons, which will help support the average selling price. and gross profit margin (GPM). As for the rubber gloves business, the average selling price is expected to increase by approximately 10% as a result of selling prices being adjusted to reflect higher costs.

Therefore, the normalized profit estimate for 2024-25 has been revised by 26% to 1,414 million baht and 2,413 million baht, respectively, from the assumption of a higher average selling price of rubber. This also reflects higher EUDR tire sales volume than previously expected.

At the same time, we saw that the STA share price had a chance to continue, so we raised the appropriate price to 24 baht per share and upgraded our recommendation to “He buys” Although the stock price increased significantly in the previous period. But he thinks it comes from a low base. It only reflects the recovery in operating results. The upward trend has not yet reversed. Of the EUDR rubber issue which will significantly support STA's growth.

For perspective Krungsri Securities There are issues with STA shares including:
1. The volume of rubber sales is expected to increase from 1.3 million tons in 2023 to 1.5 million tons in 2024.
2. The trend of rubber block prices and EUDR rubber prices is increasing due to the demand from the European Union and China.
3. Increasing EUDR frame ratio is expected to increase trend as a good sign that will help in increasing GPM for the company.
4. STA is a medium sized rubber exporter with the capacity to produce EUDR tires which are in high demand, resulting in future GPM and sales growth.

By amending the investment advice for STA shares to “Buy trading” Willing to increase the target price in 2024 to 20.40 baht per share and in 2025 to 233.40 baht per share given the company's advantage in approaching the EUDR rubber market.

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