- We cut our target price for STK by 29% as we (1) reduce our aggregate 2022F-2025F NPAT by 13%, (2) increase our WACC from 10.9% to 11.9% and (3) now include a multiple-based valuation method that better reflects STK’s short-term outlook vs previously DCF. However, we upgrade STK from MARKET PERFORM to BUY as its share price has sunk 50% in the past three months.

- The reduction in our earnings forecasts is mainly due to our lower sales volume assumption amid weak demand and destocking efforts from foreign customers in Q2-Q3 2022.

- However, we expect EPS to recover in 2023 as FX losses and destocking activities ease and customers continue relocating their orders from China to Vietnam. STK states that its largest customers expect 15% growth YoY in their orders to Vietnam in 2023.

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