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STK – AGM note: 2023 guidance maintained, 1Q23 took a hit but story unchanged

We attended STK’s 2023 annual general meeting (AGM) in HCMC on Mar 30^th. Our key takeaways are as follows.

• STK has pre-released its 1Q23 results with revenue of VND 270 bn/ USD 11.5 mn (-37% QoQ, -58% YoY) and NPAT of VND around 3 bn/ USD 0.13 mn (~ -93% QoQ, ~ -96% YoY). The preliminary 1Q23 results were weaker-than-expected but not surprised us when brand’s orders declined on destocking cycle.
• For FY2023, management keeps a conservative single-digit revenue (+1.6% YoY) and NPAT (+4.5% YoY) growth target as 1H23 sales momentum might stay mute due to brand’s inventory adjustment admits a poor demand outlook. Nevertheless, the outlook for orders might turn more positive in 2H23 (knitted orders for the fall/winter collection need a larger yarn volume than woven orders for spring/summer collection).
• Shareholders approved STK's proposal to not pay cash dividends for the FY 2022, instead a 15% stock dividend as the Unitex project is still in its investment phase. The time of issuance will be when approved by the State Securities Commission.
• Mid & long-term growth is driven by Unitex project. The Unitex project aims to increase STK’s total capacity to 60,000 tons/annum (phase 1: 36,000 tons; phase 2: 24,000 tons). Phase I of the project (with a capacity of 36,000 tons per year) is expected to begin official production starting in 1Q24.

We maintain our forecasts and a BUY rating with the one-year target price of VND 32,500/share. It implies a return of 22%, based on the closing price of Mar 31th, 2023.