Equity Analysis /

Thai Vegetable Oil PCL: Record US and global SB output; vegetable oil stocks to rise in 2022/23

  • Higher expectations for 2Q22 earnings

  • SBO is the key earnings driver in 2022; SBO price to peak in 2022

  • Record SB production for the US, Brazil and the world in 2022/23

Bualuang Securities
30 May 2022

With the USDA’s recent forecasts of record soybean (SB) output for US, Brazil and worldwide and a rise in global vegetable oils output and stock in 2022/23, their prices are set to peak in 2022 before weakening in 2023. Hence, we expect GM for soybean meal (SBM) and soybean oil (SBO) to normalize in 2023. Although 2Q22 profit estimate is improving and 2H22 earnings will resume a YoY growth (due to low 2H21 profit base), we think that the market will focus on 2022/23 SB output outlook which will hit a record high. Our HOLD rating on TVO stands for its decent dividend yield.

Higher expectations for 2Q22 earnings

For 2Q22, we now model a Bt726m net profit, flattish YoY and up 10% QoQ, and a Bt716m core profit, down 2% YoY but up 27% QoQ. Both numbers are higher than our previous estimates of Bt650m for net profit and Bt600m for core profit, thanks to higher GM expectations (11.5% against our previous 10.5% estimate). We estimate that its GM will be 11.5% in 2Q22 (against 14.2% in 2Q21 and 9.8% in 1Q22), underpinned by QoQ higher GM for SBO outweighing QoQ lower GM for SBM. Although GM looks set to be higher than our previous estimate, the best-case scenario for 2Q22 net profit is for flattish YoY growth given the 2Q21 high net and core profit base comparison. For 2Q22, the sales price for SBM is likely to rise 1% QoQ while that for SBO will rise 17% QoQ. The SBM’s sales volume is likely to be flattish QoQ while that for SBO will rise QoQ. The SB costs will rise 8-9% QoQ. Hence, we expect the surge of GM for SBO to outweigh the tumble of GM for SBM, leading to the QoQ rise in overall blended GM in 2Q22.