Thai Stanley Electric

Thai Stanley Electric Plc (STANLY)

Investment thesis: We view that the swift vehicle production recovery following 4Q11 flooding will enable STANLY to deliver great earnings. Besides, this year the firm will receive Bt300m in insurance payouts for flooding-related losses. In order to fine-tune for the gain, we have revised up our FY13 earnings projection by 8% to Bt1.95bn. As such, our YE13 target price rises by 15% to Bt265, pegged to a justified PER at 10.4x. STANLY currently trades at an FY13 PER of 8.2x; its long-term mean is 12x. Our BUY rating stands.
Release of pent-up demand driving sales: The launches of new car models should strengthen STANLY‘s FY13 (April 2012-March-2013) sales by 25% YoY. In 1Q13, the firm supplied orders for lamps for the following new and updated car and motorbike model launches—Honda Civic, Honda Scoopy, Mitsubishi Mirage, Nissan March and Kawasaki Ninja. In 2Q13 (July-Sept), STANLY has orders for the following new models—Suzuki Swift, Toyota Yaris and Honda Brio.  
25-30% capacity expansion: The new Bt2.8bn plant #7 will enable STANLY to meet rising demand for lamps for its customers. The new factory currently has a low run rate of 30%; its other plants are all operating at near full capacity. Thus, there is scope for production and sales growth of 20-25% from the capacity expansion.

Healthy balance sheet: STANLY currently has zero net debt, so it won’t have any trouble financing future investment in new plant. The firm had free cash flows of Bt1.6bn at end-June, while its FY13 CAPEX budget is set at Bt2bn (much the same level as for last year) for machinery and equipment for the new factory.
Upcoming windfall from insurance payouts: Management anticipates further insurance payouts totaling Bt300m for damages and business interruption related to the 4Q11 flooding. Note that the firm received a Bt184m insurance payout during its previous financial year. We have, thus, revised up our FY13 earnings forecast by 8% to Bt1.95bn.