Investments In AI And ASEAN Markets Will Improve Future Efficiency

Key Takeaways

• Focused expansion in ASEAN markets, particularly Thailand, Vietnam, and Indonesia, aims to drive volume growth and positively impact revenue.
  
• Investments in AI-driven cost improvements, ESG initiatives, and growth sectors promise better margins, earnings growth, and favorable investor sentiment.
  
• Rising input costs, declining exports, currency impacts, and increased debt are pressuring SCG Packaging's profitability and financial stability.

Catalysts

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

• The company is focusing on expanding its domestic market share within ASEAN countries, particularly in Thailand, Vietnam, and Indonesia. This expansion is expected to drive volume growth which will directly impact revenue positively.
  
• SCGP is planning to enhance its profitability through production cost improvements and increased energy efficiency using AI and automation, leading to expected cost savings of around THB 600 million. This initiative is likely to improve net margins.
  
• The strategic focus on innovation and customer experience enhancement by providing more comprehensive solutions and services aims to increase customer retention and acquisition, positively impacting revenue and earnings.
  
• SCGP plans to allocate over THB 8 billion for growth CapEx, particularly focusing on consumer-linked packaging sectors, healthcare, and sustainable solutions. This investment is expected to enhance revenue and stimulate earnings growth.
  
• The company is also investing in sustainability and ESG initiatives, including increasing the use of alternative fuels in anticipation of future carbon tax implications. These efforts not only aim to reduce operational costs but also resonate well with market trends, potentially aiding in margin improvement and favorable investor sentiment.

SCG Packaging Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SCG Packaging's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 3.3% in 3 years time.
• Analysts expect earnings to reach THB 5.1 billion (and earnings per share of THB 1.19) by about February 2028, up from THB 3.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB6.5 billion in earnings, and the most bearish expecting THB3.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, up from 16.6x today. This future PE is greater than the current PE for the TH Packaging industry at 8.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.55%, as per the Simply Wall St company report.

SCG Packaging Future Earnings Per Share Growth

Risks

• The increased cost of recycled paper (RCP) has negatively impacted EBITDA margins, signaling potential challenges in maintaining profitability if input costs continue to rise. [Net Margins]
  
• A significant decline in export sales, particularly to China due to soft demand, could restrict overall revenue growth and impact profitability, especially if offsetting domestic growth is insufficient. [Revenue]
  
• The appreciation of ASEAN currencies has led to higher financial costs and impacted profits, which could continue to exert pressure if exchange rates remain unfavorable. [Earnings]
  
• The fibrous business faced EBITDA margin reductions due to decreased prices for printing and writing paper, potentially affecting overall segment profitability if price weaknesses persist. [Net Margins]
  
• Increased debt from acquisitions such as Fajar, coupled with rising interest rates on overseas debt, may strain financial resources and reduce net income, impacting net profit margins. [Earnings]

Valuation

• The analysts have a consensus price target of THB21.278 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 THB13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be THB153.8 billion, earnings will come to THB5.1 billion, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of THB14.3, the analyst price target of THB21.28 is 32.8% 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.