Aapico Hitech

Aapico Hitech Plc (AH)

Investment thesis
Our BUY stands on AH, premised on: 1) sustained sales growth momentum, 2) higher operating efficiency, 3) strong management relationships with most automakers and 4) an inexpensive valuation. We see substantial scope for future earnings growth for the firm, given the robust outlook for the automotive industry.
10-15% sales growth in FY13
We attended AH’s investor meeting during the Opportunity Day yesterday. Ms Yeap Xin Rhu (P.A. to the president & CEO) said that AH targets FY13 sales growth of 10-15%. She forecasts auto production of 2.3m units in 2012 (up 60% YoY) and 2.5m units next year (up 9%). We project AH’s sales growth at 42% to Bt14.7bn this year and 10% to Bt16.2bn in FY13. Note that 9M12 sales expanded by 33% YoY to Bt11bn.
10-15% capacity expansion in FY13
Management plans to expand capacity by 10-15% next year in tandem with vehicle production growth among the big carmakers. AH has an FY13 CAPEX budget of Bt300m. Note that the CAPEX will be entirely financed by operating cash flows. Thus, we calculate that the firm’s D/E ratio will fall to 1.7x at YE13 from 2.1x at end-September.
More orders from Nissan and Isuzu
Ms Yeap said that AH received new orders from Nissan’s new factory near the Bangna-Trad Highway. The plant is slated to produce 150K cars next year. Furthermore, the firm expects bigger orders from Isuzu (which is investing Bt6.5bn in a new factory in order to expand production of the D-Max to more than 400K units next year from about 330K in 2012).
4Q12 earnings to be boosted by insurance payout
Management guides for 4Q12 sales of Bt4bn, flattish QoQ. Likewise, its gross margin and net margin will be close to the numbers for 3Q12. However, AH also expects an insurance payout of Bt50-60m for 4Q11 flooding damage. In that case, the firm’s 4Q12 net earnings would be significantly higher QoQ (its 3Q12 bottom-line was Bt168m).