Aapico Hitech

Aapico Hitech Plc (AH)

Earnings 43% above the consensus: AH reported a 3Q11 net profit of Bt136m, up by 63% YoY and 169% QoQ. The result was 43% above the consensus estimate and 70% over our figure because of stronger revenue than expected. 9M11 earnings rose 7% YoY to Bt274m, which represents 102% of our FY11 projection.    
Results highlights: Revenue increased by 9% YoY and 17% QoQ to Bt3.0bn. The top-line jump was powered by greater production (enabled by capacity expansion), as orders by major carmakers—Toyota, Honda and Nissan—rose after the shortage of critical component parts from Japan eased (the shortage was caused by the March 11 earthquake-tsunami). Because of the economies-of-scale brought by the higher production and sales, gross margin fattened to 6.9% in 3Q11 from 5.8% the previous quarter. Likewise, net margin was 4.5%, up from 3.0% for the same period last year and 1.9% in 2Q11.
Outlook: We anticipate a 4Q11 loss of Bt75m. AH’s main plant is in Hitech Industrial Estate, Ayudhya Province, which was inundated by flooding in October. Management guides that production will resume in February 2012.   
What’s changed? We have cut our FY11 earnings projection by 25% to Bt200m (from Bt268m) to factor in precipitously lower production in 4Q11 because of the flooding. The risks to our model include the cost of replacing machinery that was destroyed by the inundation at the Ayudhya plant.
Recommendation: AH will take time to rebuild production back to a normal level. The cost of retooling isn’t yet clear. Thus, we have trimmed our FY12 earnings projection by 4% to Bt327m. Despite the expected 4Q11 operating loss, AH’s stock price looks cheap—an undemanding FY12 PER of 9.0x; which is significantly below its long-term mean of 12.7x. We don’t expect the share price to decline further from its current level. The firm would be in line for an earnings forecast upgrade if it were to positively surprise with 1Q12 numbers. Regardless, we have upgraded our recommendation from SELL to TRADING BUY with a YE12 target price of Bt12.40, pegged to an FY12 PER of 10.2x.