In-Depth: FA and TA review of Sri Trang Agro PCL

Corporate Profile

Sri Trang Agro-Industry PCL (“STA”) was established in 1987 and is the world’s leading fully integrated natural rubber company with a market share of 8% of global natural rubber consumption and 7% of global glove consumption. STA’s operations span all sectors of the natural rubber industry, from rubber plantations and rubber processing to glove production.

In the upstream, STA owns approximately 7,200 hectares of rubber plantations that are in 19 provinces of Thailand.

In the midstream, STA has 36 processing facilities that are in Thailand and Indonesia, the world’s two largest natural rubber-producing countries, as well as in Myanmar. Together, STA produces from Technically Specified Rubber (“TSR”) and Ribbed Smoked Sheets (“RSS”) to Concentrated Latex (“LTX”) and have a total production capacity of 2.86 million tons per annum.

In the downstream, its listed subsidiary, Sri Trang Gloves (Thailand) Ltd. (“STGT”), is the largest glove producer in Thailand and is ranked among the world’s leading glove producers. With production facilities located in Songkhla, Suratthani and Trang, it has a total installed capacity of 33 billion pieces of gloves per annum and produces powdered and powder-free natural rubber and nitrile gloves that have a wide variety of applications, from medical to lifestyle.

Key Statistics

Financial Performance

For FY2020, STA’s revenue came in at S$3.33 billion, which is a growth rate of 22.70% year-on-year. The rise in revenue can be attributed to its glove segment, which has seen substantial growth in terms of demand due to the COVID-19 pandemic. However, its revenue growth has been partially offset by the reduction in revenue from the natural rubber segment as a result of slower demand due to the pandemic.

With the sharp rise in average selling prices of gloves for FY2020, STA witnessed a dramatic turnaround in its financial performance, with a profit of S$680.52 million, as compared to a loss of S$2.34 million in the previous years.

Dividend

In line with the significant improvement in its bottom line, STA has guided a dividend payout of 9.89 Singapore cents per share for FY2020. This translates to dividend growth of more than 500% year-on-year.

In terms of its dividend payout ratio, the ratio for FY2020 stood at 36.1%, which is slightly higher than the company's official dividend payout ratio policy of approximately 30% of its net profit for each financial year.

Based on the current share price of S$2.08, the indicative dividend yield stands at 4.75%.

Latest Development – Expansion to Hemp Plantation Business

In STA’s latest presentation slides, the company has highlighted its latest venture into the Hemp Plantation Business. Their key advantages include the ownership of large tracts of land and significant experience in agricultural planting.

Ms. Tipwadee Sudwayha, head of investor relations in STA, mentioned that the company is expected to grow its first cannabis crop once it has received approval this year, with a potential for more than 790 acres of the plant.

Lastly, STA has guided an investment amount of around 100 million baht (S$4.3 million) for this Hemp Plantation business. Overall, this new business venture could allow STA to further diversify its revenue stream.

Technical Analysis for STA

Based on the weekly chart for STA, its share price has enjoyed a strong run-up since May 2020. This can be seen from the volume chart which displays a rising green bar, which indicates buying volume is exceeding the selling volume.

Since then, its share price has been consolidating between October 2020 to February 2021. In the third week of February 2021, STA’s share price broke out of a consolidation phase, accompanied by high volume.

However, as the share price exceeds the upper limit of the Bollinger band, it triggers a slight correction in March 2021. This can be confirmed from the Moving average convergence divergence (“MACD”) histogram, which has turned red for the following weeks ahead.

Despite that, share price remains stable and trading at a range of between S$2.00 and S$2.08.

The Relative Strength Index (“RSI”) is currently at 70 and this indicates that the counter has reached the overbought region.

Lastly, as its share price still trades above the 20 Day Moving Average, it shows that the uptrend in share price is still intact. Also, Investors will have to take note of the price action as STA will trade ex-dividend on 15 April 2021.

Conclusion & Management Outlook

To summarize, STA’s financial performance has witnessed a strong recovery in FY2020, on the back of the surge in revenue and profits from its gloves segment. The upcoming diversification efforts into hemp plantation could generate a new source of revenue for the company.

Meanwhile, STA has introduced more automation to its production progress in order to improve efficiency, reduce energy consumption and become more environmentally friendly.

In the long run, STA will continue to maintain relationships with its existing customers as well as increasing market share amid industry volatility. Lastly, STA intends to eventually achieve a market share of 20% of the global natural rubber consumption, a remarkable jump from its 8% market share in FY2020 market share.(https://t.me/ShareInvestorSG)

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