Expanding Packaging And Healthcare Supplies Will Open International Markets

Key Takeaways

• SCGP's strategic expansion in consumer packaging and healthcare supplies aims to bolster revenue growth and improve earnings through domestic production capabilities.
  
• Diversification into ASEAN and international markets, coupled with U.S. expansion plans, positions the company to navigate global trade volatility and enhance long-term growth.
  
• Global economic factors and rising costs threaten SCG Packaging's revenue and earnings despite efforts in cost management and operational efficiencies.

Catalysts

Provides consumer packaging solutions in Thailand, Vietnam, Indonesia, China, and internationally.

• SCGP is prioritizing expansion in consumer packaging and healthcare supplies, which is expected to bolster revenue growth as these segments become a larger part of the total revenue.
  
• The company is focusing on cost-saving initiatives like biomass boilers and enhanced integration across its supply chain, likely to improve net margins as production becomes more efficient.
  
• SCGP's strategic decoupling from the Chinese market while diversifying into ASEAN and other international markets presents an opportunity for revenue growth amidst global trade volatility.
  
• Capital increases and operational expansion, particularly in healthcare supplies, could lead to improved earnings by reducing external dependencies and leveraging domestic production capabilities.
  
• Plans for potential expansion and investment in the U.S., along with exploring new market opportunities, could enhance long-term growth prospects and earnings by aligning with global trade dynamics.

SCG Packaging Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SCG Packaging's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.4% in 3 years time.
• Analysts expect earnings to reach THB 5.3 billion (and earnings per share of THB 1.08) by about May 2028, up from THB 2.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB6.0 billion in earnings, and the most bearish expecting THB3.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 21.1x today. This future PE is greater than the current PE for the TH Packaging industry at 8.5x.
• Analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.25%, as per the Simply Wall St company report.

SCG Packaging Future Earnings Per Share Growth

Risks

• The decline in revenue from sales, both year-on-year and due to reduced export volumes, especially in the packaging paper sector, can adversely impact overall revenue growth.
  
• Decreased EBITDA and net profit year-on-year, despite improved margins through cost management, suggest ongoing pressures on earnings if market conditions do not improve.
  
• Exposure to global economic volatility, particularly the impact of U.S. tariffs and reduced export to China, presents risks to international sales and revenue stability.
  
• Rising raw material costs, especially related to RCP, could pressure net margins despite efforts in cost reduction and operational efficiencies.
  
• Potential fluctuations in financial markets, including interest and exchange rates, might increase borrowing costs, thereby affecting net margins and earnings.

Valuation

• The analysts have a consensus price target of THB19.284 for SCG Packaging based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB45.0, and the most bearish reporting a price target of just THB10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be THB156.1 billion, earnings will come to THB5.3 billion, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of THB14.1, the analyst price target of THB19.28 is 26.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.