Thai Stanley Electric

Thai Stanley Electric Plc (STANLY) 

 

Profit for 4Q15 came in as expected

STANLY posted 4Q15 (January-March 2015) earnings of Bt368m, a drop of 8% but an increase of 5% QoQ. The number was in line with our estimate but 63% higher than the Bloomberg consensus. Note that its FY15 earnings dived 22% to Bt1,158m, which represents 101% of our FY15 earnings projection of Bt1,150m.

Results highlights

Revenue jumped 15% YoY and 17% QoQ to Bt2.8bn, due largely to new orders for Mitsubishi (Triton and Attrage), Nissan (new Navara) and Honda (new Accord). Note that January-March 2015 vehicle output was 523k units, up 11.2% QoQ and 1.1% YoY. STANLY’s GM was 20.2% in 4Q15, sliding from 22.3% for the previous quarter (due to more CAPEX on production to support the new models mentioned).

The firm’s newest (seventh) production line’s run rate rose close to 60%. But, the failure to build economies-of-scale at that line was largely responsible for the YoY GM slump. Management expects the line’s utilization rate to approach 70% by late 2H16 (October-March). 

Outlook

We anticipate that STANLY will deliver strong YoY core earnings growth for 1Q16 (April-June 2016). Rising GM and rising sales for new orders should drive up the bottom line. Note that the Federation of Thai Industries (FTI) forecasts 2015 Thai car production growth of 10% to 2.1m units following a contraction of 18% in 2014.

What’s changed?

We maintain our FY16 earnings projections unchanged.

Recommendation

The Automotive sector will start recovering in 2H15, so STANLY will see gradually stronger order flows (from Nissan, Mitsubishi and Honda) in 1Q16 (April-June 2015) onwards. This could mean it will achieve better sales and improved GM from last year. Given the anticipated better outlook later this year, we reiterate our BUY rating for STANLY.