SVI Plc
Slow, but sure: Six new clients to boost 2014F Buy
SVI Plc
Adds six large clients in 2012-1H13. After the flooding in 4Q11 took away one client
and several orders, rather than struggling to get the old orders back – which would
have required price cuts - SVI management instead went out to get new clients and
new business. It successfully signed on six large new clients over 2012-1H13 for several
products: 1) special lighting for entertainment, 2) thermo printers, 3) high-end digital
amplifiers, 4) medical care line, 5) door solutions (security) and 6) shipboard
temperature controls.
Time required to ramp up, cut 2013F by 10% ... New orders from the six new clients
is great news. However, it has taken longer than originally anticipated to get these
orders up and running, since clients preferred to wait for the new models before
starting with SVI. Mass production of new products has been shifted from 3Q-4Q13F to
4Q13-1Q14F, according to the company’s IR. Hence, we are slashing 2013F sales by 9%
to US$260mn (+5% YoY vs. new company guidance of 5-10%) and earnings by 10% to
Bt673mn or Bt0.30/share.
But will lift 2014F to new highs. After the production for the new clients takes off in
4Q13-1Q14F, we expect 2014F core earnings to surge ~19% to Bt808mn or Bt0.36/share,
a new high for this company. This is based on these assumptions: US$312mn sales
(+20% YoY, following company guidance), operating margin back up to 7.9% from 6.5%
in 2013F close to 2011’s 8%.
Final ~Bt1bn insurance claims in 2H13 to early 2014. SVI has received a letter from
its insurance firm confirming additional compensation of ~Bt400-500mn to be paid in
2H13F, with the remainder, a similar amount, expected to come in 4Q13F or 1Q14F.
Proceeds from this claim may be used for: 1) M&A (depending on the situation of the
target company in Europe), 2) expansion or 3) interim dividend.
Buy for robust 2014F; unchanged mid-2014 TP of Bt4.4. Bolstered by upcoming
order flows from new clients, it is positioned to stand out in its sector in early 2014,
before going on to achieving a new high for earnings in 2014F. We continue to rate it a
Buy and TP is unchanged - despite the cut in 2013F - at Bt4.4 based on 13x PER (the
industry’s +0.5SD ten-year historical average) as we roll TP to mid-2014 from end-2013.
