- STK released Q2 2022 results that are weaker than we expected as revenue inched up 4% YoY and NPAT-MI edged down 2% YoY. H1 2022 revenue and NPAT-MI achieved 42% and 38% of our respective 2022F, mostly due to weaker-than-expected sales. Meanwhile, the H1 2022 EBIT margin is in line with our forecast. We see potential downside risk to our forecasts as in our last Update Report, dated May 16, 2022, pending a fuller review.

- STK’s direct customers (fabric makers) placed less orders in anticipation of a slowdown in demand. Per management, customer orders have improved from April to July 2022; however, we attribute this partly to seasonality as H2 is typically STK’s high season.

- Virgin yarn sales outperformed vs recycled yarn (+18% vs -8% YoY in Q2 2022), which was also the case for sales volume, per management. This situation could change our view of recycled yarn’s resilience vs virgin yarn amid inflation.