Earnings Report /
Vietnam

SMC: Q3 could be the toughest quarter

  • H1 22 – Profits reduced due to high costs; adverse effects from geopolitical tensions and global monetary tightening

  • Gross profit margin has little chance to improve in the H2 as steel prices have not recovered significantly

  • We recommend 'Observe' on SMC until demand shows signs of firm recovery

Tam Pham
Tam Pham

Fishery, Insurance

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Rong Viet
26 August 2022
Published byRong Viet

Profits reduced by 82% yoy in H1 22 due to gross profit margin dropping 3% from 10.1% in H1 21 – a sharp increase in losses from exchange rate difference and high interest expense.

Processing orders are weak and plans to invest in new factories are being delayed.

In H2, we expect a loss in Q3 due to high-priced inventories before a recovery in Q4. HRC price seem to have bottomed in August, but is not likely to rally quickly in a short time, amid high uncertainties from the pandemic, geopolitics and high inflation. Pressures on the profit margin of the processing segment will be high as the material inventory period of this segment is higher than that of the trading segment.

For the full year 2022, we forecast revenue and NPAT-MI at VND 24,164bn (+13% yoy) and VND106bn (-88% yoy), respectively with a loss of VND62bn in Q3.

SMC is now trading at a TTM PER of 4.8x, higher than 2.9x of 2021. However, as this year profit will be lower compared to the peak of last year, the PER forward for 2022 is 13.7x. Thus, the stock seems unattractive at the current valuation. We recommend to Observe on SMC until demand shows signs of firm recovery