Pi STOCK UPDATE : SYNEX (BUY : FAIR PRICE Bt17.86)
" After heavy rain, a rainbow should form "
We maintain our BUY rating and lower our fair price to Bt17.86 (down by 6% from our previous forecast), based on Gordon Growth model (Ke: 10%, LT-growth: 6.00%). Core earnings significantly dropped YoY and QoQ to Bt48m (-72% YoY, -63% QoQ). Due to the weak result, we revised our 23E core earnings downwards by 20% to Bt595m (-19% YoY). However, the company is still undergoing a new S-Curve by being a digital solution provider (cloud, server & storage, cybersecurity, etc), which we think will help improve the company’s sales and margins in the long-run. Additionally, we think consumer segments will recover as the economy improves. Thus, we think core earnings in 24E will recover to Bt780m (+31% YoY). The company announced interim dividends worth Bt0.10, XD date on 24 Aug 2023.
2Q23 core earnings was affected by many factors
• Core earnings in 2Q23 was at Bt48m (-72% YoY, -63% QoQ), dropping significantly YoY and QoQ due to lower sales and gross margin. Compared to the first quarter, 2Q23 core earnings was also impacted by higher tax rates, as well as lower equity income from NCAP. We believe core earnings has bottomed out in 2Q23.
• Sales in 2Q23 was at Bt8.5bn (-11% YoY, -7% QoQ), declining both YoY and QoQ due to lower sales in Communication (phone, tablets, etc). However, sales in the Consumer (gaming consoles, computer parts & peripherals) and Commercial (network, digital services) segments remained intact, with the latter even growing double-digit YoY. We think sales should improve going forward with new product launches and a gradually improving economy.
• Gross margin in 2Q23 was at 3.8% (-0.5ppts YoY, -0.4ppts QoQ), narrowing YoY and QoQ as the company had to sell products cheaply to push out inventory, in preparation for 3Q23 and 4Q23. We believe this result is quite uncommon and gross margin levels should recover in 3Q23.
2H23 should improve HoH due to seasonality
• After revising 23E core earnings downwards, 1H23 result comprises around 30% of our full-year forecast.
• This implies that we expect 2H23 earnings to be at Bt416m (+132% HoH). We think that 2Q23 was where everything that could go wrong did go wrong at the same time. Thus, the large HoH growth is due to a low 1H23 base.
• 2H23 core earnings should be driven mainly by seasonality from new key product launches (iPhone 15 series, etc) and gross margin recovery to normal levels.
