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STK's earnings would be expected to grow robustly by 90.4% YoY in FY21F and 37.0% CAGR over FY21-23F. 

Century Synthetic Fiber Corporation (STK) earnings would be expected to grow robustly by 90.4% YoY in FY21F and 37.0% CAGR over FY21-23F. Meanwhile, Song Hong Garment JSC (MSH) would have full orders until Jun-22 due to the rebound of orders from U.S. customers.

STK: Robust earnings despite a supply disruption

STK posted 3Q21 revenue of VND469bn (43.1% YoY) and net profit of VND62.4bn (212.2% YoY), thanks to (1) low base in 3Q20 (net profit decreased 60.7% YoY), and 2) yarn average sell price (ASP) increased 28% YoY thanks to the depletion of yarn inventories in China. Overall, 9M21 revenue and NP achieved VND1,577bn (29.3% YoY) and VND203bn (171.2% YoY), fulfilling 62.1% and 70.4% of our full-year forecast.

VNDirect increased STK's revenue forecast in FY22/23F by 10.8%/8.3% vs. the previous report mainly underpinned by gaining more market share from the domestic market. It also raised GM in FY22/23F by 0.3% pts on the back of the assumption that the Unitex factory phase 1 will operate commercially in 1Q23 and operate at 80% capacity in FY23. Furthermore, an anti-dumping tax on foreign competitors will support for STK to improve GPM in FY22-23F. As a result, STK's net profit in FY22/23F was revised up 12.9%/17.4% vs. previous forecasts.

Is STK still attractive after a 195% YTD price increase? First, VNDirect expected the demand for recycling yarns to recover since 4Q21 thanks to the demand recovery of the domestic market and electric shortage situations in China. Second, STK is one of the biggest beneficiaries of the anti-dumping tax on yarns imported from China and India. Last, STK can enhance its capacity by 28% when phase 1 of the Unitex factory will be gone into commercial operation in 1Q23F. “We expect STK to deliver an earnings CAGR of 37.0% over FY21-23F and to improve its ROAE to 29.2% in FY23F. Currently, STK is traded at 15.7x which is attractive with lower than 31.5% of peer average”, VNDirect said.

MSH: Leverage from a new factory

MSH's revenue in 3Q21 reached VND1296.4bn (21.4% YoY), while net profit increased significantly 179% YoY, to VND118.8bn as the strong growth of FOB orders from new customers in the U.S (Haddad and Walmart) and orders to be shifted from Myanmar and Southern companies. MSH’s revenue from the FOB segment achieved VND1148bn (10.1% YoY), accounting for 88% of MSH revenue in 3Q21. Overall, 9M21 revenue and NP achieved VND3,448bn (16.3% YoY) and VND335bn (103.1% YoY), fulfilling 78% and 74.7% of our full-year forecast.

VNDirect expected MSH's order outlook to remain positive in FY22F-23F thanks to the demand recovery from the U.S. market and its compact customer base, with the top brand in the U.S. retail market such as Columbia, G-III, and especially Walmart (new customer in FY20). It forecasted FOB order from Walmart to contribute 23%/26% to MSH's revenue in FY22F-23F.

This stock company expects Song Hong 10 factory to operate at full capacity in FY22F. To catch the strong demand from US customers, MSH’s management has approved the investment plan of the Song Hong 10 (SH10) factory with an investment cost of VND600bn. SH10 started construction in Mar-21 and is expected to complete in Nov-21. SH10 only produces FOB orders with the designed capacity of US$70m FOB orders value per annum. “We expect SH10 to reach a 50% utilization rate in the last two months of FY21 and achieve full capacity in FY22F-23F. We forecast the SH10 factory will help FOB revenue grow 15%/20% YoY in FY22/23F proportion in revenue and bring FOB contribution of the total revenue to 88%/92%, respectively, from 73.5% in FY20”, VNDirect said.

VNDirect increased MSH’s target price by 45.2% to VND100,100 as it now applies FY22F EPS and raises its target P/E to 10.0x based on historical 1-year average P/E. Potential re-rating catalysts are the recovery in volume thanks to a rebound of market demand. However, the key downside risks to MSH are (1) the worsening of the Covid-19 outbreak in MSH's domestic markets may hit MSH's performance directly and (2) increases in input material price and logistic fee on GPM of MSH in FY22F.