Thai Stanley Electric

Thai Stanley Electric Plc (STANLY)

Deep into the red: STANLY reported a 3Q12 (Oct-Dec 2011) loss of Bt367m, a reversal from the profit of Bt444m reported for 2Q11. The result severely undershot the consensus estimate of Bt224m profit—OPEX was heavier than expected. Thus, 3Q12 gross margin flipped to -13.4% from +25% the previous quarter. 9M12 (April-Dec) earnings plunged 71% YoY to Bt309m, which represents only 22% of our earlier FY12 projection.    
Results highlights: Revenue plummeted by 47% YoY and 54% QoQ to Bt1.15bn. The big drop was caused by major customers—Toyota, Honda and Nissan—shutting down their main factories during Oct-Nov 2011 because of supply disruptions brought by the flooding and Honda’s assembly line was inundated. Note that the Honda car plant remains inoperative, but it is to commence running in April, the restart date brought forward from an earlier date of July. Toyota and Nissan resumed production in December 2011. 
Outlook: We anticipate a profit of Bt191m for 4Q12 (Jan-March 2012), led by a sales recovery and improved economies-of-scale, as Toyota and Nissan are now both operating as normal output rates. But STANLY’s biggest client (30% of sales), Honda, will take longer to re-start operating its car assembly plant in Ayudhya.
What’s changed? We have slashed our FY12 profit projection 64% to Bt500m to factor in the dreadful 3Q12 numbers. Nevertheless, we maintain our FY13 earnings forecast of Bt1.67bn because production at all the major auto producers should normalize in 2H12. Note that the Federation of Thai Industries (FTI) anticipates that vehicle output will recover to 1.9m units in FY12, up 28% from 1.46m last year.
Recommendation: We view that STANLY’s poor 4Q12 (Jan-March) numbers are behind us and its bottom-line will recover in tandem with sales to leading Japanese car makers. Auto sales this year will be buoyed by the govt’s first-time car buyer tax rebate scheme. We have raised our end-March 2013 target price from Bt162 to Bt180, pegged to a conservative PER of 8.3x for FY13 (April 2012-March 2013) We, thus, have upgraded our rating from HOLD to BUY.