Thai Stanley Electric

Thai Stanley Electric Plc (STANLY)

Below all estimates: STANLY reported 1Q13 (April-June 2012) earnings of Bt328m, up 41% YoY but down 21% QoQ. The result was 21% below the Bloomberg consensus and 23% short of our forecast. Corporate tax expenses were much higher than we modeled and OPEX jumped. Thus, net margin slipped to 13.0% from 18.9% the previous quarter. 1Q13 profit represents 21% of our FY13 earnings projection.
Results highlights: Revenue jumped 15% QoQ to Bt2.5bn, driven by major customers—Toyota, Honda and Nissan—who ramped up production in order to make up for output lost as a result of the 4Q11 flooding. Note that STANLY started manufacturing for Honda’s assembly line one month before its assembly plant resumed operating on March 27.  
Outlook: We anticipate that the firm will deliver better QoQ earnings for 2Q13, in tandem with vehicle production expansion among its major clients. Additionally, STANLY’s new factory will commence operating in 2Q13, boosting its output and increasing economies-of-scale. Thus, its net margin should rise somewhat.
What’s changed? We maintain our FY13 earnings (April 2012-March 2013) forecast of Bt1.8bn because production at all the major auto makers should normalize in 2H12. Note that the Federation of Thai Industries (FTI) recently revised up its 2012 vehicle output forecast to 2.2m units (from 2.1m units), up from 1.47m last year.
Recommendation: STANLY’s sales and earnings will expand in 2Q13 (July-Sept), led by increasing demand from car makers who are rushing to cater to the release of pent-up demand for new vehicles. The govt’s extension of the qualifying delivery date for its first-time car buyer tax rebate scheme to end-June 2013 from end-Dec 2012 will help buoy domestic demand for cars. We maintain a BUY rating on STANLY with an end-March 2013 target price of Bt230, pegged to a conservative PER of 9.7x.