What caused STK's record loss?

According to the Q2 2024 financial report, Century Synthetic Fiber Corporation (HoSE: STK) recorded a 26% decrease in net sales over the same time previous year. However, the cost of items sold fell at a slower rate, by 15% to over VND 293 billion, resulting in a gross profit of about VND 10 billion, compared to over VND 60 billion in the same time previous year.

Financial revenue climbed by 37% over the same time last year, reaching almost VND 9 billion, while financial costs increased by 420%, reaching nearly VND 58 billion. Other profits fell 97% from the same time previous year.

Despite lowering selling and administrative costs by 48% and 18%, respectively, compared to the same time, the fiber sector business nonetheless posted a quarterly loss of more than VND 55.4 billion. This is also STK's highest quarterly loss since the fourth quarter of 2016, when it lost VND 14 billion.

According to company leaders, the loss was due to low sales revenue and the inclusion of machine downtime costs in the cost of goods sold because the company shut down many machines during the period to limit   the increase in finished goods inventory amid weak market demand.

Cumulatively, for the first half of 2024, STK’s net revenue decreased by 18% compared to the same period in 2023. Post-tax profits recorded a loss of nearly VND 55 billion, while the same period last year saw a profit of over VND 39 billion. With this result, the company is far from its target of VND 300 billion profit for 2024.

As of the end of Q2 2024, the company’s total assets stood at VND 3,574 billion, up 20% from the beginning of the year. Of this, construction in progress accounted for over VND 1,761 billion, an increase of more than VND 1,000 billion from the beginning of the year. This is the company's investment in the Unitex factory project, phase 1.

Inventory, while down more than 17% from the start of the year, nevertheless made up a sizable component of the company's overall asset structure, at VND 507.5 billion.

On the other side of the balance sheet, the company's liabilities at the end of Q2 were over VND 1,900 billion, a 44% increase from the start of the year. The majority of this debt was financial borrowing from banks, totaling more than VND 1,600 billion, a 57% rise from the start of the year.

According to Vietcap Securities, the Unitex factory has completed 90% of construction and 60% of machinery installation. Vietcap expects Unitex to begin operating some Draw Textured Yarn (DTY) production lines in early Q3 2024 and to be fully operational by Q4 2024. Currently, the securities company forecasts that Unitex will add 36,000 tons (a 60% increase in capacity) to STK’s current capacity in 2024.

Vietcap also notes that a strong increase in orders in Q2 2024 will support recovery momentum in the second half of 2024. After a period of inventory reduction from 2022 to 2023, the inventory levels of some retailers and textile brands have returned to reasonable levels. In Q2 2024, STK’s orders reached 9,000 tons, up 14% from the same period, thanks to restocking activities and orders transferred from China.

However, preliminary actual sales volume in Q2 2024 reached about 6,700 tons, down 15% from the same period, due to issues with the new automated quality control system that replaced the manual quality control system earlier this year. Nonetheless, Vietcap believes the overall trend indicates that demand will continue to recover in the second half of 2024.

Similarly, Bao Viet Securities (BVSC) reports that as of February 2024, STK had completed 90% of the overall construction volume for phase 1 of the Unitex factory and 50% of machinery installation. Construction is expected to be completed in Q2 2024, with the factory starting operations in July 2024.

According to BVSC, company leadership expects Q2 2024 orders to reach approximately 9,000 tons, up 14% from the same period, and that business results will be more favorable in the second half of 2024. Orders in May and June 2024 showed positive growth compared to the beginning of the year, with relatively optimistic orders from Unify and Lear.

STK's revenue and post-tax profit in 2024 are expected to be VND 2,152 billion and VND 141 billion, respectively, up 51% and 60%, according to BVSC. They also expect business results to improve from last year's low base; however, the gross profit margin will not return to the 5-year average of 16% due to weak consumption demand and the recognition of depreciation expenses after phase 1 of the Unitex factory begins operations in July 2024.