NER is poised for a strong second half of the year; brokers recommend a "buy" rating with a target price as high as 6.50 baht.

NER is poised for a strong second half of the year. Brokers recommend a "buy" rating with a target price as high as 6.50 baht , benefiting from recovering rubber prices and tight supply. They forecast 69 profits to reach 1.8 billion baht, highlighting the company's low PE ratio within the EUDR product group.

Analysts recommend a "buy" rating for North East Rubber Public Company Limited ( NER), with a target price as high as 6.50 baht per share. They foresee a strong recovery in performance in the second half of 69, driven by rising rubber prices due to tight market supply. Furthermore, they view NER as one of the Thai rubber sheet producers poised to benefit from Europe's EUDR (European Responsibility for Duration and Reform) measures should they be implemented. They project full-year profits to reach 1.8 billion baht and highlight the share price's low P/E ratio compared to other EUDR-compliant product manufacturers.

Yuanta Securities (Thailand) Co., Ltd. published an analysis of North East Rubber Public Company Limited (NER) stock, stating that NER is one of the Thai rubber manufacturers expected to benefit if Europe's EUDR measures come into effect as scheduled without further delay.

Currently, the company has received orders for approximately 2,000 tons of EUDR rubber and has around 10,000 tons of qualified rubber ready for delivery. The target for EUDR rubber sales is approximately 40,000 tons per year, or no more than 10% of total sales volume, if fully implemented.

However, NER's core strategy remains focused on the Non-EUDR market, a market in which it has expertise and a strong existing customer base, and which does not incur additional costs to comply with EUDR requirements.

“We believe the company may indirectly benefit from some of the rubber supply being drawn into the EUDR market, which could boost prices and allow NER to increase its market share in the Non-EUDR market.”

The current selling price of rubber blocks has increased to 77-80 baht/kg, following the SICOM rubber price reaching its highest level in over 10 years due to tight rubber supply in the market. Meanwhile, some rubber is likely to be diverted to the production of EUDR products, causing the price of non-EUDR rubber to rise accordingly. For Q3/2569, the supply problems were not as severe as the company anticipated, supporting an increase in sales volume to approximately 1.2 tons (+10% QoQ, +7% YoY).

While GPM has the potential to remain above 10% (compared to a full-year forecast of only 9.3%), operating profit could approach its previous high of 619 million baht. However, in Q4/2569, if El Niño intensifies, sales volume may decrease to around 1.1 tons.

However, it is still supported by high selling prices and GPM. We expect normalized profit in 2H2569 to be 1.0-1.1 billion baht, supporting full-year profit potentially reaching 1.8 billion baht +/-, approximately 4% higher than our estimate. The expected continued tight rubber supply in 2570 will support selling prices and GPM, leading to continued profit growth and upside in our estimates.

The 2569 profit estimate may be better than previously estimated, potentially leading to an upward revision of the 2570 profit forecast as well. Revenue growth is expected to be driven by an increase in the average selling price, should an El Niño event occur in 2570, potentially boosting the gross profit margin (GPM) above the projected 9.8%.

Currently, NER is trading at a low PER2569 of just 5.0x, compared to TEGH and STA at 6.0x and 12.7x, respectively. It offers a dividend yield of 7% per year (with a remaining 0.26 baht dividend yield of 6% in 2H2569). Given the positive business outlook, we have revised our PER valuation upwards from 6x to 7x, resulting in an increased year-end 2569 target price of 6.50 baht, representing a 40.1% upside. We maintain our “Buy” recommendation.

KGI Securities (Thailand) Public Company Limited stated that the consensus target price for NER is 5.40 baht. They assess that rubber prices are rising sharply, testing a 9-year high, driven by El Niño. Furthermore, the valuation is considered inexpensive with a forward PE of 5 times. The consensus forecast is a dividend of 0.35 baht per share this year (dividend yield 7.6%). 0.05 baht per share has already been paid in the first half of 2569, leaving a remaining dividend of 0.30 baht per share (yield 6.5%).