We recommend investors take profit on NRF after its sharp share price rally, up 63% YTD and up 120% within six months after IPO on October 9, 2020 (IPO price of Bt4.60). Valuations, at 2021 PER of 59.8x and 48.3x for 2022, cannot hold-up in light of QoQ weakness in 1Q21 result in mid-Mar 2021. We have downgraded rating to HOLD (from BUY), unchanged a YE21 DCF-derived target price of Bt10 (7.6% WACC and 2.5% terminal growth).
Short-term earnings hiccup
In the short-term, we got a negative surprise in 1Q21 result outlook, as the numbers are likely below-our-earlier-expectations (from flattish QoQ previously) mainly due to margins hiccup. Thus, we now forecast net profit (core profit) of Bt32m in 1Q21, a jump of 56% YoY but down 10% QoQ: core profit growth YoY from low base at Bt14m in 1Q20 but substantial plunge from Bt68m core profit in 4Q20. Strong earnings growth YoY was thanks to sales expansion (a 50% growth to Bt398m in 1Q21) leading to economies of scale (core margin should expand from a deep low at 5.4% in 1Q20 to 7.9% in 1Q21). However, core earnings are expected to plunge 53% QoQ dampened by a 9% sales contraction (some shipment delays) and rise in SG&A expenses (high at 24.4% to sales in 1Q21 regarding M&A deals expenses against 15.7% in 4Q20).