Somboon Advance Technology

Somboon Advance Technology Plc (SAT)
Result 6% short of our model: SAT posted a 1Q12 net profit of Bt207m, a turnaround from the net loss of Bt102m it reported for the previous quarter. The result was in line with the consensus, but 6% lower than our estimate, as net profit margin was slimmer than modeled at 9.4% (our assumption was 9.6%). 1Q12 earnings represent 19.7% of our FY12 projection.
Results highlights: Revenue jumped by 23% YoY and 85% QoQ to Bt2.2bn as order flows from major car makers—Toyota, Mitsubishi and Nissan—recovered swiftly after flooding last quarter. Among the carmakers, only Honda’s assembly plant remained closed for the quarter (it resumed operating on March 27).
Given stronger sales, SAT’s 1Q12 gross margin recovered to 16% from 4.4% in 4Q11. Likewise, as noted above, net margin was 9.4% versus –8.6% the previous quarter.
Outlook: We anticipate that 2Q12 earnings will rise QoQ, broadly in line with the swift recovery in car production, domestic sales and exports. We expect Thai vehicle sales to rise 12% QoQ during the quarter, now that all the big carmakers have resumed operating.   
What’s changed? Our FY12 earnings projection stands unchanged at Bt1.05bn (EPS: Bt3.09), up 157% YoY, despite the fact that the 1Q12 bottom-line was slightly lower than our estimate. We are confident that SAT will report sustained growth in revenue and profit throughout this year. Furthermore, there is scope for upside to vehicle demand as a result of the government’s first-time car buyer tax refund scheme. That would mean more orders for SAT.
Recommendation: We maintain our BUY rating, premised on a good FY12 profit of Bt1.05bn and scope for upside to the bottom-line if car production exceeds the current base-case forecast. At the moment, SAT trades at an inexpensive FY12 PER of 9.2x—far below its last peak of 12.9x. Our YE12 target price is Bt32.25, pegged to a PER of 10.4x.