Sugar production art SBT

According to VNDirect's estimation, listed sugar producer businesses' total revenue increased by 16.7% yoy and their net profit improved by 5.4% yoy in 9M22. KTS (72% yoy) and LSS (47% yoy) were the top firms to report the fastest growth in 9M22 earnings.

"We think the 9.0% yoy increase in sugar prices and the 7-9% yoy increase in sales volume are the main reasons for the increase in total revenue. However, as a result of higher output prices, sugar producers' overall gross margin increased 2.9% points year over year in 9M22. SBT record weaker GM growth compared to peers, narrowing 2.1% pts in 9M22 due to higher raw sugar price affected negatively to the company's GM in 2Q22", said Ms. Ha Thu Hien, analyst at VNDirect.

Due to the anticipated expansion of the sugarcane acreage in 2023F, next year might be a good year for sugar producers. Due to the low price of sugarcane, which encouraged farmers to switch their land over to other varieties, the sugarcane area has been steadily declining since 2017–18. In addition to extracting sugar from cane due to a recent shortage of indigenous sugarcane, sugar companies also import raw sugar for refining.

However, Ms. Ha Thu Hien thinks that farmers will be motivated to increase the sugarcane plantation in the 2022–2023 season as a result of recent high increases in domestic sugar prices and protective measures from the government.

According to VSSA, the sugarcane area is expected to reach 151,305 ha (3.0% yoy), the output of processing sugarcane is 8,764,277 tones (16.5% yoy) and the sugar output is 870,930 tones (16.6% yoy).

VNDirect's estimation shows that the domestic sugar price will benefit from the new tax because the price of smuggled sugar will be 15% higher following the introduction of the anti-dumping tax.

Prior to the implementation of anti-circumvention measures against trade remedies for sugar imported from ASEAN countries in the third quarter of 2022, the domestic sugar price jumped by 10–14%, while prices in China and the ASEAN region remained stable. The domestic sugar price will also follow the global sugar price because the domestic sugar supply only covers 35–40% of the domestic demand.

>> Anti-dumping tax will support sugar industry

According to Quang Ngai Sugar Joint Stock Company (UPCoM: QNS), major sugar producing nations including Brazil, Thailand, and India would convert from sugarcane to ethanol production as a result of the high price of oil, maintaining a high global sugar price in 1H23F.

As these companies have the largest scale in sugarcane materials for sugar production and are well positioned to capture the rising demand for domestic sugar, Ms. Ha Thu Hien anticipates that Thanh Thanh Cong - Bien Hoa JSC (HoSE: SBT) and QNS will be able to take advantage of the upward trend in sugar prices and increase the gross margin of its sugar business. For QNS, we anticipate 13.1%/8.5% year-over-year sales growth and -0.6% points/0.2% pts GM growth in FY22-23F.

According to Ms. Ha Thu Hien, domestic sugar producers could run into issues like smuggling and trade fraud, which if not fully managed, could put downward pressure on price pressure for domestic sugar. Additionally, the production of sugarcane may be impacted by the high possibility of Neutral phase in 2023F (less rainfall than La Nina).