SFLEX: Further Correction Is Motivated as the Stock Is Overpriced

We maintain a SELL recommendation on SFLEX based on an unchanged target price of Bt4.45, implying a downside of 16% from the current price. We derive our target price from a DCF-based valuation using a WACC of 6.7% and a terminal growth rate of 4%.

Investment thesis:

• Demand shift towards flexible plastic packaging drives growth prospects
• Continued capacity expansion to meet the growing demand
• Broadening product spectrum to attract customers from other industries

Interim: Revenue was up by 18.0% YoY in 3Q20. We think we have been a bit pessimistic about the revenue potential for SFLEX and adjust our forecast slightly upward. At the same time, we think competition is going to put pressure on the gross margin.

Risks: Reliance on four major customers, fluctuations in raw material prices, high inventory turnover, and intense price competition in packaging industry.