Thai Stanley Electric

Thai Stanley Electric Plc (STANLY)

Investment thesis
We reiterate our BUY rating on STANLY, premised on: 1) stable revenue flows in 2H13, driven by recent orders for new models placed by Toyota, Honda and Nissan, 2) rising capacity utilization at the new factory (Lamp#7) in FY14, 3) a debt-free financial position and 4) low PERs of 9.6x for FY14 and 8.6x for FY15 (significantly below its last peak of 14.4x in 2004).
5-10% sales growth guidance for FY14
Management anticipates FY14 (April 2013-March 2014) sales growth of 5-10%, broadly in line with expected automotive production this year. Although the delivery deadline for vehicles ordered under the govt’s first-time car buyer tax rebate scheme was June 2013, STANLY has won new orders from big carmakers—from Toyota for new the Vios, from Mitsubishi for the Attrage and from Nissan for the Pulsa. We, conservatively assume FY14 sales growth of 6%.
Improved capacity utilization rate
Apart from the new factory, Lamp#7, STANLY‘s plants are operating at utilization rates exceeding 90%. Even Lamp#7’s run rate has increased from 40% in FY13 to 60% currently. Management guides that the new factory’s utilization rate will rise to 90-100% by March 2014. STANLY should achieve a gross margin of 23% for FY14 (up from 22% in FY13), comparable to the pre-4Q11 flooding level.
Further capacity expansion of 5-10% in FY14
The firm has set an FY14 CAPEX budget of Bt1.7bn (lower than last year’s investment of Bt2bn) for a new production line in FY14, which will expand production by 5-10% in order to cater to rising demand from major clients, Honda, Nissan, Yamaha and Toyota. The investment will be financed entirely by internal cash flows, according to STANLY. Note that at end-June 2013, the firm had cash on-hand of Bt2.3bn.
Looking to move offshore
Management said that calendar-year 2014 auto production is likely to rise only modestly YoY. Thus, the firm is looking to open new operations in other markets through JVs with Thai Stanley Electric Japan and indigenous auto parts makers in Vietnam, India and Indonesia and Laos. Note that Thai Stanley already has equity stakes in manufacturing plants in Vietnam, Laos and Indonesia and the combined revenue contributions from these holdings (by way of dividend payments) comprise about 10% of its annual top-line. New offshore investments would diversify risk further. Vietnam, Indonesia and Laos could also export elsewhere in ASEAN with the advent of the AEC in 2015.