P.C.S. Machine Group Holding

What’s new?

PCSGH’s FY14 sales could total Bt5bn, according to Mr Prasong Adulratananukul, CEO, which would be close to the number for last year. Major clients—GM, Toyota, Auto Alliance (Ford-Mazda), Isuzu and Mitsubishi—are expanding orders for 2H14 following a slump in 1H14, according to the firm. Management guides for a gross margin of 21-22% in FY14, down from 30% last year because competition has intensified. The firm expects FY15 sales to normalize in tandem with a broad industry recovery.

2H14 sales to recover

Management guides that 2H14 sales will recover HoH on order growth. The firm has revised up its FY14 sales guidance from a contraction of 5-10 YoY formerly to flat YoY. Note that we maintain our PCSGH sales assumptions at Bt4.6bn for FY14, down 10% YoY (we will wait for proof of sales growth before adjusting our model) and Bt5.3bn for FY15, up 15% YoY. Note that the managements of both SAT and AH expect 2015 auto production to rise from 2m units in 2014 (down 18% YoY) to 2.2m units in 2015. We forecast PCSGH’s GM at 21.5% in FY14 and 28% in FY15 (its 1H14 GM was 23%, down from 30% in FY13).

Lower CAPEX in FY14; normalization next year

The weak business environment for the automotive industry meant that PCSGH scaled back its CAPEX from Bt569m in FY13 to Bt400m in FY14. The firm expects FY15 CAPEX to normalize at Bt500-600m, all of which will be financed by internal cash flows. Note that the firm posted cash in-hand of Bt600m at end-June 2014. It has had a net cash position since its IPO in 1Q14. 

Our thoughts

We expect PCSGH to deliver better HoH sales in 2H14 —the worst of the post-first time car buyer scheme collapse in sales is now behind us. Our model also assumes FY15 sales growth of 15% YoY to Bt5.3bn after a projected 10% YoY decline to Bt4.6bn in FY14. We currently forecast FY14 earnings of Bt910m, down 50% YoY, then a 60% YoY bounce in FY15 to Bt1.4bn. Thus, share price downside risk from here appears limited. We have upgraded our PCSGH rating from HOLD to BUY with a YE15 target price of Bt11.3, pegged to a justified FY15 PER of 12x.