Equity Analysis /

Khon Kaen Sugar Industry PCL: Sustained high sugar price plus bigger volume leads to GM expansion

  • Global sugar surplus estimate of 1m tonnes for 2022/23

  • Sustained high sugar price expectation at 18-20 cents/lb in 2022

  • Fatter sales, lower raw material costs and GM expansion in 2022

Bualuang Securities
26 January 2022

Despite an estimated global sugar surplus of 1m tonne for 2022/23 led by Brazil’s higher 2022/23 cane and sugar output (related to decent rainfall in Brazil during Oct-Jan), we deem the surplus as marginal, leading to our expectation of sustained high sugar price of 18-20 cents/lb in 2022. Due to the increased sugar and electricity sales volume, lower unit cost on enhanced economies of scale and fatter GM, KSL’s earnings look set to bounce strongly in 2022.

Global sugar surplus estimate of 1m tonnes for 2022/23

S&P Global Platts Analytics, the soft commodities research house, released the forecast of 1.14m tonnes for 2022/23 global sugar surplus, against deficits of 1.19m tonnes in 2021/22 and 3.02m tonnes in 2020/21. We regard a 1.1m tonnes surplus for 2022/23 as an insignificant amount, attributable mainly to higher 2022/23 Brazilian cane and sugar output. Brazil’s 2022/23 south-central cane and sugar output is projected at the mean of 550m tonnes and 34.3m tonnes, respectively. These will represent a 5.4% rise for cane and a 7.1% rise for sugar, respectively (against Brazil’s 2021/22 cane output of 521.6m tonnes and sugar output of 32.03m tonnes). The reason underlying Brazil’s 2022/23 cane and sugar rise is the decent rainfall experienced in the south-central part of Brazil during Oct-Jan (excluding southern Brazil’s Rio Grande do Sul, Mato Grosso do Sul and Parana which suffered serious or complete drought) and the anticipated increase rainfall in Sao Paulo and Minas Gerais in Jan through Mar 2022.