Thai Stanley Electric

Thai Stanley Electric Plc (STANLY) 

3Q15 profit was 6% over our estimate

STANLY posted 3Q15 (Oct-Dec 2014) earnings of Bt350m, up by 4% YoY and 49% QoQ. The number was 6% above our estimate and 9% higher than the Bloomberg consensus, due to a bigger gain on the sale of an asset (Lamp Factory#4) than modeled. For the quarter, STANLY’s gain was Bt91m (we had expected a gain of Bt70m). Note that its 9M15 earnings dived 27% to Bt790m, which represents 69% of our FY15 projection.

Results highlights

Revenue dipped by 5% YoY and 2% QoQ to Bt2.3bn, due largely to delays to new orders in the prevailing environment of weak demand for cars and low automotive production. Note that Oct-Dec 2014 vehicle output was 471k units, down 10.7% YoY but up 3.1% QoQ. STANLY’s GM was 18.5% in 3Q15, down from 21.2% in 3Q14 but up from 15.3% the previous quarter (due to better efficiency).

The firm’s newest (seventh) production line’s run rate remained below 60%. The failure to build economies-of-scale at the seventh line was largely responsible for the YoY GM slump. Management expects the new line’s utilization rate to approach 70% by late 4Q15 (Jan-March 2015). 

Outlook

We anticipate that STANLY will deliver slightly higher QoQ core earnings growth for 4Q15 (Jan-March 2015). Rising GM and lower OPEX for new orders will push up the bottom-line. Besides, the firm plans to divest more non-core assets in 4Q15 (Jan-March 2015).

What’s changed?

We maintain our FY15 and FY16 earnings projections unchanged.

Recommendation

The Automotive sector will start recovering this year, so STANLY will see gradually stronger order flows. Note that the Federation of Thai Industries (FTI) forecasts 2015 Thai car production growth of 10% to 2.1m units following a contraction of 18% in 2014. 

Hence, we have rolled over our investment horizon to March 2016 and arrived at a new target price of Bt246, pegged to a PER of 13.8x (up 1SD). The stock currently trades at an inexpensive FY16 PER (April 2015-March 2016) of 12x. Its last peak was 13.75x (up 1SD) in 2012 before domestic demand for cars collapsed with the end of the First Time Car Buyer Scheme. We have upgraded our STANLY rating from SELL to BUY.