Somboon Advance Technology
On track to recover next year Thailand still production hub for 1-ton pick-ups; most carmakers have resumed production. Expect fiscal year 2012 profit to jump 70% year-on-year as company raises auto production and expands capacity Maintain, BUY offers
Somboon Advance Technology Plc (SAT)
Near-term operations will be weak due to flooding. Automakers should register lower production in 4Q11 following the supply chain disruption caused by severe flooding. We expect SAT to post Bt50m loss this quarter due to lower utilisation rate of c.40% against its breakeven of 45%. But FY12F earnings should surge 70% with the recovery of Thailand’s auto production, lower corporate tax rate, and SAT’s capacity expansion. SAT recently added 30% capacity for axle shafts (its key product, contributes one-third of revenue).
Strategic hub for 1-ton pick-up trucks. Thailand should remain an auto production hub in this region, especially for 1-ton pick up trucks, because of competitive production costs, availability of skilled labors, and a solid auto parts supply chain. 90% of the parts in 1-ton pick-up trucks are made locally, which is attractive to auto makers. Thailand also imposes one of the lowest excise taxes (of 3%) on 1-ton pick-up trucks. Todate, all automakers have resumed partial operations except Honda (possibly in 2Q12).
Maintain BUY. SAT’s share price is strongly correlated to Thailand’s auto production. Hence, the temporarily drop in auto production is an opportunity to buy SAT. Our Bt22.5 target price is pegged to 10x 2012F PE.
