FREE

STK – Turnaround may take longer

• 4Q23 will be another rough season. We forecast that STK's net revenue and NPAT-MI will reach VND 389 bn/ USD 16.0 mn (+3% QoQ, -9% YoY) and VND 20 bn/ USD 0.8 mn (+20% QoQ, -53% YoY) in Q4, respectively. Assumptions: (1) recycled yarn will account for approximately 50% of revenue (+10% QoQ), and (2) ASP will be equal to 3Q23. Hence, net revenue and NPAT-MI are estimated to be VND 1,462 bn/ USD 60.3 mn (-31% YoY) and VND 76 bn/ USD 3.1 mn(-69% YoY), respectively, for the full year 2023, equating to an EPS of VND 891/share.

• 2024 will be a brighter year compared to a relatively low base in 2023. We project that STK’s net revenue and NPAT-MI will reach VND 2,432 bn/ USD 100.3 mn (+66% YoY) and VND 157 bn/ USD 6.5 (+108% YoY), respectively. These projections are based on the assumptions that (1) the total yarn sales volume will recover by 52% YoY, (2) the proportion of recycled yarn will constitute 55% of the total revenue, and (3) additional interest expenses of VND 70 bn/USD 2.9 mn and depreciation costs of VND 120 bn/ USD 5.0 mn will be incurred as the Unitex factory becomes operational in Q3/2024. The corresponding EPS for 2024 is to be 1,670 VND per share.
• We maintain a NEUTRAL recommendation for STK stock with an adjusted target price based on the revised projections for the recovery prospects in 2024, which have slowed down compared to previous forecasts (adjusted down from the target price of 31,700 VND per share). Utilizing a combination of the DCF method and a P/E ratio (target P/E of 10.0x), we establish a new target price of 26,200 VND per share. This corresponds to an expected return rate of 3% based on the closing price as of December 25, 2023.