Somboon Advance Technology

Somboon Advance Technology Plc (SAT)

 Result below our model: SAT booked a 4Q11 net loss of Bt102m following a net profit of Bt205m for the previous quarter. The loss was twice as deep as our net loss estimate of Bt50m. Net margin was -8.6% versus 10.5% in 3Q11. FY12 earnings declined 46% YoY to Bt408m, which represents only 87% of our projection.
Results highlights: Revenue plunged by 29% YoY and 39% QoQ to Bt1.19bn as order flows from major car makers—Toyota, Mitsubishi and Nissan—plummeted during the 4Q11 flooding. Among the car makers, only Honda’s assembly plant was inundated, but all were subject to supply disruptions as a result of the flooding. Honda has yet to resume production.
SAT’s 4Q11 gross margin fell to 4.4% from 17.7% in 3Q11. Likewise, as noted above, net margin was -8.6% versus10.5% the previous quarter.
Outlook: We anticipate that 1Q12 earnings will recover QoQ (management guides for modest YoY growth as well). We expect sales for the quarter to rise 40% QoQ because all the big car makers except Honda have resumed normal production.   
What’s changed? Our FY12 earnings projection of Bt980m (EPS: Bt2.88), up 140%, stands unchanged, despite the fact that FY11 earnings fell short of our projection. We are confident that this year, SAT will report sustained growth in revenue and profit. There is also scope for upside to vehicle demand from the govt’s first-time car buyer tax refund scheme, which would be expected to boost orders to SAT.
Recommendation: Vehicle production has normalized and most of the car makers have expanded production in order to make up for output lost as a result of the 4Q11 flooding. SAT currently trades at an FY12 PER of 8.6x—far below its last peak of 12.9x just ahead of the Japanese earthquake and tsunami on March 11, 2011. Given the Thai automobile industry’s swift recovery from the flooding, we have raised our YE12 target price to Bt29 from Bt23.50, pegged to a PER target of 10.07x. Our BUY rating stands.