SFLEX: Staying Behind Key Players in the Market

We initiate coverage on SFLEX with a SELL recommendation based on a target price of Bt8.90, implying a downside of 28% from the current price. We derive our target price from a DCF-based valuation using a WACC of 7.0% 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: Food packaging drove up revenue by 15% in 2Q20 YoY. Higher sales and improved raw-material management expanded the gross margin significantly.

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