P.C.S. Machine Group Holding

P.C.S. Machine Group Holding Plc (PCSGH)

 

Investment thesis

3Q14 earnings were 19% below our expectation 

PCSGH posted a 3Q14 net profit of Bt191m, up 1% YoY but down 7% QoQ. The result was 19% below our estimate and 26% short of the Bloomberg consensus, due mainly to GM squeeze. Also, 3Q14 sales were 12% short of our projection due to a delayed big-ticket delivery during the period. 9M14 earnings represent 69% of our forecast of Bt1.2bn.

Results highlights

Revenue dropped 11% YoY (but was up 3% QoQ) to Bt1.04bn. The top-line was 12% below our estimate—demand among major car makers for parts to build vehicles slumped following the June 2013 delivery deadline for the government’s First-time Car Buyer Excise Tax Rebate Scheme. Also a big-ticket delivery to a client was delayed. Thus, PCSGH reported poor GM of 21%, down from 24.8% in 2Q14 but up slightly up from 20.2% in 3Q13 (we had modeled for 24%). Similarly, 3Q14 net margin was 18.4%, down from 20.5% in 2Q14, but up from 16.3% in the corresponding period last year (we had assumed 20%). 

Outlook

We anticipate that 4Q14 profit will rise slightly YoY and QoQ, in tandem with recovering auto production (we also expect the order that had been delayed in 3Q14 to be delivered).

What’s changed?

Our earnings forecasts of Bt910m for FY14 and Bt1.45bn for FY15 stand unchanged for the moment. 

Recommendation

The automotive industry should start recovering in 4Q14, we expect, led initially by exports. Eventually consumer spending in Thailand will rebuild momentum. PCSGH’s earnings hit bottom in 3Q14, we believe. Thus, downside risk to the share price risk from here would appear to be limited. We maintain a BUY rating with YE15 target price of Bt11.30, pegged to a justified PER of 12x.