Thai Stanley Electric

Thai Stanley Electric Plc (STANLY) 

 

Investment thesis

We attended STANLY’s analyst meeting last week, hosted by Executive Chairman Apichart Lee-issaranukul. He passed on that production strategy would now focus on high-value-added products to boost its gross margin and profit this year after he expected its FY16 sales to be up slightly or flat from last year. His views are consistent with our assumptions. We forecast its FY16 sales to rise only 4%, with improved GM of 19% (from 18% last year). We, thus, maintain our STANLY earnings forecasts at Bt1.36bn (up 18% YoY) for FY16 (April 2015-March 2016) and Bt1.45bn (up 7%) for FY17 (April 2016-March 2017). Our BUY rating stands.

Focus now centers on high-margin products to boost bottom line

Management remains bearish on the automotive sector in the next six months due to the slow recovery caused by poor local sales and slow exports to Middle-Eastern and EU markets. Thus, the company has shifted FY16 production from vehicle electric lamps to high-margin products (such as LED and Xenon lamps, instead of electric bulbs), it told analysts. We believe that this activity could drive its FY16 profit up 18% despite low sales growth of 4%. We expect its FY16 GM to rise to 19% from 18% last year.  

It also remarked that during March 2015, STANLY was awarded new orders from big carmakers—Toyota, for its Hilux Revo (a pick-up truck); Nissan, for its Navara (pick-up); Honda, for its CRV and new Accord; and Mitsubishi, for its new Triton and Attrage models. The orders would sustain its sales in FY16 (April 2015-March 2016) so that they remain close to last year’s figures or slightly better, management communicated. Note that we keep our FY16 STANLY’s sales estimate at Bt9.9bn, up 4% YoY.

FY16 capacity utilization rate could exceed 70%

STANLY‘s plants were operating at utilization rates of about 75% in 4Q15 from 68-69% in 9M15, whereas its new Lamp#7 factory’s run rate was 60%, up from 50% in 9M15. The upcoming orders mentioned could allow its utilization rate to reach beyond 70% in FY16, management stated. Given better trends, we have maintained our GM assumptions at 19% for both FY16 and FY17 from 18% last year. The better-than-modeled sales could allow STANLY to deliver better GM than our forecast, we calculate.

Debt-free state solidifies financial health 

The firm maintains CAPEX budget of Bt1bn in FY16 (close to the previous year) for modifying existing production lines to cater to the demand shifts of major clients—Toyota, Honda, Nissan, and Mitsubishi. The investment will be financed entirely by internal cash flows, STANLY management held. Note that at end-March 2015, the firm had cash on-hand (plus cash equivalents) of Bt2.6bn and was debt-free. We feel happy about the firm’s long-term financial operations during this year and next.