SRI Trang

SRI Trang: Deutsche maintains Buy with TP of Thb 35.00. Note that with declining natural rubber prices and depreciation of the Thai baht in 2Q11, STA booked an inventory loss of Bt357m and a FX loss of Bt240m. If reverting back these items, grp’s gross margin would have widened from the actual 4.2% in 2Q11 to 5.9%.

Sales vol in the qtr rose 11% yoy to 234,303 tons but declined 6.8% qoq. Value of exports to China grew 41% yoy but fell 39% qoq due to credit tightening in that country as part of the Chinese's govt efforts to curb inflation. However, lower export vol to China was offset by a rise in sales vol to the EU, US and other Asian countries by 112.5%, 18.9% and 5.3% respectively.

China demand saw improvement in Jul and grp saw a pick up in demand from China in early Jul but demand was mainly for manufacturing not for inventory restocking. Natural rubber prices in 3Q11 have remained quite stable so far, again, implying supply tightness condition, while Capacity expansion is on track

Mgt expects grp to have total production capacity of 1.12m tons by end-2011 and 1.5m tons by end-2012. Believe that grp's sales vol can grow in line with capacity expansion but the outlook for ASP remains uncertain. However, optimistic that prices of natural rubber will be higher next year given continued tightness in supply.