Singer Thailand

Singer Thailand Plc (SINGER)

Action and recommendation

- Outperform rating maintained with a new fair value of Bt29.0. We are more optimistic about SINGER’s business model and strategy after attending its opportunity day yesterday. Stronger-than-expected sales of key products has prompted us to revise up our 2013-15 net profit forecasts by 3-10%. Our 2013 fair value based on a DCF methodology thus rises from Bt24.0 to Bt29.0, equivalent to a 2013 PER of 24.8x and a 2013 PBV of 5.5x. Trading at a 2013 PER of 21.6x, the stock remains cheap compared with the average of the PERs of the commerce and financial sectors of 24.3x (at a ratio of 30:70, which is SINGER’s ratio of cash sales to HP sales). Also, its net profit growth is attractive at an expected 29% CAGR over the next 3 years.

Key investment points

- 2013-15 net profits revised up by 3%, 7% and 10%. We take a more bullish view of SINGER’s growth outlook over the next three years given that many of its key products have been performing well above our previous forecasts and due to our confidence in management’s strategy to grow sales. Moreover, lower SG&A to sales, lower interest expense following the issue of a debenture, the benefit from a tax loss carry forward, amortization of goodwill, and lower corporate tax rate will support our optimistic view of its earnings. Our net profit forecasts indicate growth of 40%, 26% and 22% in 2013-15, respectively.

- Strong performance of many key products. The response to SINGER’s newly launched commercial products has been better than we had expected. For example, the sales volume of petro vending machines (PVM) in the first two months was 300 units/month higher than our earlier forecast. As it is the largest-bill-per-piece item (about Bt100,000/unit) among SINGER’s products, it will boost revenue strongly. The success of freezers in traditional trade stores has similarly exceeded our earlier number. Also, the changing platform from analog to digital TV
will provide a great opportunity for SINGER in the TV category in 2014. Note that we have not included the new CCTV product that the company plans to roll out this year in our projections. Based on these factors, we expect SINGER’s revenue in 2013-15 to grow strongly by 19%, 16% and 15%.

- Attractive gross margin to be maintained despite more commercial products blended into revenue. Although the nice expansion in commercial products will have a slightly negative impact on SINGER’s overall gross margin as such goods have lower margins than household products, it should stay at a very strong level. We expect gross margin to decline to 54.3%, 53.8% and 53.8% in 2013-15 from 54.6% in 2012. Moreover, the higher price per piece for these kinds of products will help accelerate revenue growth, benefiting the company’s bottom line. Also, this category has a lower risk of bad debt compared with household goods as the products generate money for SINGER’s clients that can be used to pay the installments.

Price catalysts
Upside from the successful launch of two new subsidiaries, Singer Leasing (SLL) and Singer Service Plus (SSPL), which we have not included in our projections.