Thai Stanley Electric

Thai Stanley Electric Plc (STANLY) 

Investment thesis

We attended STANLY’s analyst meeting yesterday, hosted by Mr Apichart Lee-issaranukul, the executive chairman. He is now slightly more optimistic over the automotive industry’s outlook for domestic sales for calendar-year 2015. His views are broadly consistent with our assumptions. We maintain our STANLY earnings forecasts at Bt1.15bn (down 22% YoY) for FY15 (April 2014-March 2015) and Bt1.36bn (up 18%) for FY16 (April 2015-March 2016). During December 2014, STANLY won new orders from Nissan, Honda and Mitsubishi for new models. These orders should boost FY16 sales. Our BUY rating stands.

FY16 sales forecast flat or modest growth

Management guides that FY16 (April 2015-March 2016) sales will be flat or up a bit YoY. Domestic car sales should rise somewhat and exports to CLMV markets should increase (the export outlook is weak for markets in the Middle East and EU). Sales are expected to start recovering clearly in the Sept-Dec quarter. In December 2014, STANLY was awarded new orders by big carmakers—from Nissan for its Navara (pick-up truck), from Honda for its Mobilio and new 2015 CRV models and from Mitsubishi for its new Triton model. The new orders should push up sales in FY16. We maintain our STANLY sales assumptions at Bt9.4bn for FY15, down 8% YoY and Bt9.9bn for FY16, up 5% YoY.

Capacity utilization rate will recover to over 70% in FY16

The firm’s plants operated at a mean utilization rate of 74% in 3Q15, up from 70% in 1H15, whereas its new Lamp#7 factory’s run rate was 62% up from 50% in 1H15. The new aforementioned orders should push up the utilization rate to close to 80% in FY16, said management. We maintain our GM assumptions at 18% for FY15 and 19% for FY16.

Lower CAPEX and debt-free

STANLY’s CAPEX budget is only Bt1bn for both FY15 and FY16 (lower than its FY14 number of Bt1.4bn), allocated entirely to modifying existing production lines to cater to demand shifts among major clients—Honda, Nissan, Mitsubishi and Toyota. The investment will be financed by internal cash flows, according to STANLY. Note that at YE14, the firm had cash on-hand of Bt1.7bn and was debt-free.

Extra gains from asset sales in 4Q15 (Jan 2015-March 2015)

Mr Apichart said the firm made an extra gain of Bt91m in 3Q15 from the sale of a factory in Navanakorn Industrial Estate. STANLY also expects another gain of several hundred million baht in 4Q15 on the divestment of equities. As such, the scale of its YoY FY15 profit drop will be mitigated to some extent. We have already assumed this in our model. We forecast other income of Bt220m in FY15, down from Bt310m (tied mostly to insurance payouts) in FY14.