Thai Stanley Electric

Thai Stanley Electric Plc (STANLY)

BUY rating with new 2013 TP at Bt300/share. We maintain STANLY as our top buy
in the automotive sector. We expect its strong earnings momentum to continue,
supported by more orders and widening gross margin upon improving operations at
new plant, Lamp 7. We raise our FY2014 forecast by 4% to factor in wider gross margin
(24% from previous forecast of 23.3%). Our new projection forecasts strong earnings
growth of 28% YoY to Bt2.0bn in FY2014 (Apr 2013–Mar 2014). STANLY is financially
strong, with net cash position and high ROE. Our new 2013 TP is Bt300/share based on
11x PE (from Bt270/share).

STANLY’s sales growth target at 5% is conservative. At its analyst meeting,
STANLY said it expects 2013 auto production of 2.6mn units, or 6% YoY growth, and
conservatively targets FY2014 sales growth of 5% - with a better gross margin. It has
orders for items for new car models, including head and rear lamp set for Honda New
Accord, head and rear lamp set for Nissan Pulzar and rear lamp set for Toyota New
Vios. STANLY is talking with Toyota about producing the lamp set for Toyota’s eco-car
which is expected to be introduced in 2H13. STANLY has set FY2014 CAPEX at Bt1.7bn,
mainly for machines and equipment. We view its FY2014 sales growth target of 5% as
conservative and estimate sales growth of 12% YoY to Bt12.7bn and gross margin at
24% in FY2014, up from 22.3% in FY2013, boosted by more orders and improving
operations at its new plant, Lamp 7.
Lamp 7 turning to be a driver. Started up in 2QFY13 (July–Sep 2012), Lamp 7’s
operations are improving, with utilization increasing from 15% in 2QFY13 to 42% in
3QFY13, 60% in 4QFY13 and 70% currently. Orders on hand are expected to bring this
plant up to full utilization in July-August this year. The improved operations of Lamp 7
and low defect rate is seen in the stronger sales and wider gross margin in 4QFY13 to
24.4% from the low 20.6% in 2QFY13. We expect margin to continue to widen in FY2014.
Concerns on baht appreciation. STANLY’s concern is the baht appreciation that
could impact Thailand’s auto exports and automakers and ripple out to indirectly hurt
STANLY via price pressure from Japanese automakers, STANLY’s major clients. Note
that the baht has strengthened against the yen and the US dollar by 18% and 3% YTD,
respectively.
4QFY13 and FY2013. STANLY reported record net profit in FY4Q13 (Jan-Mar 2013) of
Bt485mn, up 16% YoY and 10% QoQ. The high earnings were facilitated by a wider gross
margin. FY2013 net profit was Bt1.6bn, jumping from Bt727mn upon operational
recovery after the flooding and Lamp 7’s operations. STANLY announced a dividend of
Bt6.75/share, implying 3% dividend yield. XD is 11 July 2013 and paid on 31 July 2013.