Thai Stanley Electric
Profit far short of estimate, as sales missed expectation
Thai Stanley Electric Plc (STANLY)
1Q15 profit was 40% below our estimate
STANLY posted 1Q15 (April-June 2014) earnings of Bt204m, down by 48% YoY and 49% QoQ. The number was 40% below our estimate and the Bloomberg consensus. The bottom-line disappointment was due to lower sales than modeled. During the quarter, STANLY’s sales plunged by 28% YoY; we had expected a drop of only 18%. Thus, 1Q15 earnings represent only 12% of our old FY15 projection.
Results highlights
Revenue dived by 28% YoY and 14% QoQ to Bt2bn, due largely to lower domestic car sales and production with the end of deliveries under the first-time car buyer scheme in June 2013. Note that 2Q14 vehicle output (April-June 2014) plunged by 30% YoY and 16% QoQ to 435k units.
STANLY’s newest (seventh) production line’s run rate was 50%. The firm expects it to approach 55-60% by September 2014. Note that 1Q15 GM slipped to 17.6% from 22.3% the previous quarter—due to lower sales and diminished economies-of-scale.
Outlook
We anticipate that the firm will deliver QoQ earnings growth for 2Q15 (July 2014-Sept 2014), due to increased QoQ auto production. However, its operation should improve significantly in 2H15 (Oct 2014-March 2015) in tandem with expansion of direct exports and new orders for the Nissan Navara, Mitsubishi Attrage, Honda Jazz and for Toyota pick-up trucks. STANLY budgets low CAPEX of Bt1bn, which will be fully financed by internal cash flows.
What’s changed?
Given the poor 1Q15 results, we have cut our FY15-16 earnings forecasts by 22% and 19%, respectively to Bt1.36bn and Bt1.5bn.
Recommendation
Although the July-Sept outlook for automotive production is poor, given weak consumption and the absence of the first-time car buyer scheme, we expect vehicle output to recover somewhat on the launches of new models and rising export sales. Earnings bottomed out in 1Q15 and we remain positive about STANLY’s long-term prospects—rising capacity utilization and new orders from Toyota and Mitsubishi for new models. We have re-rated our end-March 2015 target price to Bt244, pegged to a forward PER of 13.75x (up 1SD from its long-term mean). We have upgraded our rating from HOLD to BUY.
