Gloves, vaccines shape analyst views
The rubber glove business and hopes for a vaccine are among the core equity investment strategies in the second half, thanks to surging demand and the domestic tourism stimulus package, say analysts.
As demand for rubber gloves continues to surge, SET-listed Sri Trang Gloves Thailand (STGT) is the main beneficiary as the global virus outbreak persists.
STGT, ranked third globally in rubber glove production, reported a substantial rise in second-quarter sales and net profit, mainly due rubber gloves being demanded by various groups around the globe.
The company reported total sales of 4.86 billion baht in the April-to-June period, up 71% year-on-year, while net profit rocketed 486% year-on-year to 1.1 billion baht despite an exchange rate loss of 77 million baht.
STGT is a subsidiary of SET-listed Sri Trang Agro-Industry, a fully integrated natural rubber company with an 8% market share of global natural rubber consumption and a 7% market share of global glove consumption.
"We have revised STGT's buying guidance and will revise up its fundamental price," said a Phillip Securities analyst, speaking on condition of anonymity as a media licence from the Securities and Exchange Commission has not been granted. "STGT's share price fell previously on concerns about the company's future operations following news of the vaccine development process.
"With the pandemic remaining at large, sales of rubber gloves are expected to continue to grow and perform better than expected."
Earnings in the second quarter accounted for 35% of the company's full-year forecast, according to an analyst from Yuanta Securities Thailand.
The company's production capacity for rubber gloves is registered at 32.6 billion pieces a year from factories in Songkhla, Surat Thani and Trang provinces.
The production capacity will increase to more than 50 billion pieces a year by 2024 with the construction of new factories in Chumphon province and Sadao district in Songkhla.
Despite a fluctuation in share price movement, rubber gloves are still growing on the demand side in case a vaccine for the coronavirus is successfully developed in the future, the analyst said.
"The company's profit is expected to grow by 100% until at least 2022 as the pre-order for rubber gloves will last until the second quarter of that year," the analyst said.
BEACON OF HOPE
Although second-quarter results marked a massive disappointment for SET-listed companies operating in the hospitality sector as a result of the lockdown measures, revenue from the restaurant business and domestic travel stimulus package are likely to rev up earnings for hoteliers going forward, said an analyst at Yuanta Securities, speaking on condition of anonymity, again because of no media licence from the Securities and Exchange Commission.
With the easing of the lockdown measures, hotels and restaurants will resume full operations within this year, the analyst said.
SET-listed firms operating in the hospitality and restaurant sectors saw a steep plunge in first-half net profit.
Minor International registered a net loss of 10.2 billion baht during the first six months. Similarly, Central Plaza Hotel logged first-half net losses of 511 million baht.
New privileges in the tourism stimulus campaign offering businesses lodging, meanwhile, drew a mixed response from tourism operators.
Tourism Authority of Thailand governor Yuthasak Supasorn said that about 10,000 tourists use the privileges per day, far below the initial target.
The government is offering a 3,000-baht subsidy on 5 million hotel rooms and a 40% discount on airline tickets to Thai tourists next month, under a 20-billion-baht programme to revitalise the tourism industry.
Vaccine development is a beacon of hope for airport operators and airlines, as it will be the key factor that will allow travel to resume again.
If the vaccine is produced successfully and tourism gradually resumes, earnings of airport operators, such as Airports of Thailand (AoT), will gradually improve in the future, the analyst said.
AoT saw a net loss of 8.9 billion baht for the three-month period that ended in June. The period marks the company's third-quarter operating results in tandem with the government's fiscal year, which starts every October of each year.
"For investment after a vaccine is distributed, we still choose hotels first because private sector will have more flexibility in management, while AoT relies more on foreigners compared with hotel operators," the analyst said. "In addition, the risk of a longer airspace shutdown and delayed vaccine development could have a bearing on stock prices for the long term."