Somboon Advance Technology

Somboon Advance Technology Plc (SAT)

Operations better in 3Q12. Talks with the company have confirmed our view on
SAT’s operational improvement. Sales have continued to grow well in July and August,
boosted by increasing auto production. Productivity at casting plant ICP2 has improved
from 2Q12 and this will widen SAT’s gross margin in 2H12. SAT is aiming at a gross
margin of 18% in 3Q12 and 20% in 4Q12 after the weak 2Q12 gross margin of 14%,
which was eroded by outsourcing costs.
3Q12F preview. We estimate 3Q12 net profit at Bt237mn, up 16% YoY and 48% QoQ,
backed by: 1) sales of Bt2.5bn, up 26% YoY and 11% QoQ, driven by growing auto
production and 2) gross margin at 17.6%, up from 14.4% in 2Q12 from better ICP2
operations; it is expected to be flat YoY.
SAT is sector’s top buy. SAT’s share price has underperformed the SET by 6% QTD as
investors responded to its failure to meet expectations in 2Q12. We believe that this
disappointment is now discounted in the price and that the stock will from here on
out be given support by the stronger sales and gross profit margin improvement in
2H12. We stand by our forecast of 90% core earnings growth in 2012 and 23% in 2013.
SAT is our top pick in the sector and we rate it as BUY with mid-2013 TP at Bt34/share
(based on 13x PE).