Thai Stanley Electric

Thai Stanley Electric Plc (STANLY) 

 

Profit for 1Q16 falls short on bigger OPEX

STANLY posted 1Q16 (April-June 2015) earnings of Bt176m, a decline of 14% YoY and 52% QoQ. The number was 26% below our estimate and 20% lower than the Bloomberg consensus due to lower-than-modeled GM. The firm marked 1Q16 GM at 13.7% lower than our number of 16%. It is notable also that its 1Q15 earnings represented 17% of our new FY15 earnings projection of Bt1,060m.

Results highlights

Revenue jumped 18% YoY but slipped 12% QoQ to Bt2.4bn. The YoY growth was largely due to new orders for Mitsubishi (Triton and Attrage), Nissan (new Navara) and Honda (new Accord). Note that April-June 2015 vehicle output was 411k units, a decline of 22% QoQ and 5.7% YoY. STANLY’s GM dived to 13.7% in 1Q16 from 20.2% in the previous quarter and 17.6% in the same period last year (due to more CAPEX on production to support new models), as mentioned. 

The firm’s newest (seventh) production line’s run rate climbed close to 60%. The failure to build economies-of-scale at the seventh line was largely responsible for the YoY GM slump in the quarter. The CEO expects the new line’s utilization rate to be 70% in late 2H16. 

Outlook

We anticipate that STANLY will post slightly higher QoQ core earnings growth for 2Q16 (July-September 2016) from rising GM and rising sales. It should be noted that the Federation of Thai Industries (FTI) forecasts 2015 Thai car production growth of 10% to 2.1m units after the 18% drop in 2014. We have seen downside to the FTI forecast as 1H15 auto production dipped 2% YoY to 935k units.

What’s changed?

We slash our earnings projections in FY16 by 22% to Bt1.06bn and FY17 by 17.9% to Bt1.2bn. These cuts reflect poorer sales than were modeled earlier. We cut our sales to carry on flat in FY16 from their former +5.0% and FY17 to climb 7% from the previous 10%.

Recommendation

It appears the Automotive sector rejuvenation will take more time than we had assumed, hampered by lower economic recovery and poor auto export demand. We expect that the industry will start recovering in 4Q15, so STANLY will gradually see stronger order flows (Nissan, Mitsubishi and Honda) in late 3Q16 (October-December 2015) onwards. Given the poor outlook further into the next six months of this year, from rising production costs and poor new car sales, we have downgraded our rating on STANLY rating from BUY to SELL, with a new YE16 target price of Bt166, pegged to the sectoral mean of 12x.