SCGP – 3Q26F: Strong YoY, soften QoQ

We expect SCGP to report a 3Q26 core profit of Bt2bn (+103% YoY, -13% QoQ), driven by Fajar Paper’s turnaround, though QoQ results will soften due to rising recycled paper and energy coal costs. The 4Q26 outlook is expected to remain flat QoQ, as slight sales volume gains from early restocking for 1Q27 festivals (Chinese New Year, Tet, and Ramadan) are offset by lingering high input costs. We maintain an OUTPERFORM rating with a mid-2027 target price of Bt39, based on 22x PE, or -0.5 SD of the 5-year mean.

Expect 3Q26 core profit to rise 103% YoY but decline 13% QoQ. We expect SCGP to report a core profit of Bt2bn in 3Q26, up 103% YoY, driven primarily by the continued turnaround of Fajar Paper, which is expected to generate Bt250mn in core profit (reversing a Bt328mn loss in 3Q25 and expanding from Bt200mn in 2Q26). Fajar’s turnaround is anchored by higher ASP, high-margin product portfolio optimization, restructuring high-cost gas supply contracts, debt restructuring, and internal efficiency initiatives (adopting biomass/fiber efficiency models from Thailand). However, we expect core profit to soften 13% QoQ from a high 2Q26 base due to cost-push pressures, specifically rising recycled paper (RCP) costs, elevated freight and domestic transportation rates, and an upward trend in coal/energy prices (ICI3 coal spot prices around US$90/t). Sales volume is expected to remain stable QoQ, supported by a September demand rebound across ASEAN essential packaging and FMCG (notably Vietnam and Indonesia), offset by seasonal rainy-season weakness in Thailand. We expect SCGP’s gross margin to ease to 22.3% in 3Q26 (3Q25: 18.0%, 2Q26: 23.7%), higher YoY driven mainly by Fajar’s turnaround but softening QoQ on higher RCP and energy coal costs. Testliner ASP reached US$409/t in 3Q26 (+10% YoY, +1% QoQ) and dissolving pulp price at US$902/t (+12% YoY, +2% QoQ) supported from higher demand. Short fiber pulp declined to US$575/t (+15% YoY, -5% QoQ) on seasonality.

4Q26 core earnings outlook to be lower QoQ. We expect 4Q26 core earnings to be slightly lower QoQ on the higher RPC and coal cost but partially offset by improve sale volume QoQ as regional customers restock early for festivals falling in 1Q27 (Chinese New Year, Tet, and Ramadan). Selling prices should be held at current levels as costs remain high, while the Bt600mn 2026 cost-saving target is on track. MYPAK should turn profitable by end-2026 and Vietnam demand stays strong.

M&P deals are expected to be finalized in 4Q26 or early 1Q27. SCGP has allocated an investment budget of Bt5.5bn this year for its M&P strategy. A key deal is expected to be finalized in 4Q26 or early 1Q27, reflects the company's commitment to accelerating value creation, increasing integration levels, and unlocking competitiveness in high-growth segments to drive revenue growth.

We revised up our 2026 core profit forecast by 7% to reflect a better-than-expected gross margin of 21.7% (up from 21.2% previously) due to better cost control and a stronger product mix strategy. We maintain our 2027 core earnings forecast.

Action & recommendation. We maintain our OUTPERFORM rating with a mid-2027 TP of Bt39, based on 22x PE, or -0.5 SD of the 5-year mean.

Key risks are a continued slow economy in China and geopolitical unrest raising coal cost. Key ESG risks are energy management, sustainability products, and high greenhouse gas emissions (E).