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 has a bearish view of the automotive industry’s outlook for Jan-Jun 2016, before it turns slightly positive from new car models and economic recovery. The firm will focus more on high-value-added products to sustain its GM and improve sales in FY16 and FY17. We have maintained our STANLY earnings forecasts of Bt1.1bn (down 2% YoY) in FY16 and Bt1.4bn in FY17 (up 18%). Given higher earnings in FY17 (Apr 2016-Mar 2017), we have also retained our BUY rating for STANLY with our target price of Bt208, pegged to PE of 14x (+1.0 SD over mean of 10.5x).

Reiterate prudent FY16 sales forecast to grow 0-5%

Management guides that FY16 (Apr 2015-Mar 2016) sales will be slightly up in range between 0-5% from an expected flat or modest contraction YoY. This is attributable to new orders from Toyota (new Fortuner), Nissan (new Navara), Honda (new Accord and Zoomer) and Mitsubishi (new Pajero Sport and Triton). The orders would push its sales up in the next three months and next year. We have maintained our FY16 sales of Bt10bn, up 5% YoY and sales for FY17 of Bt10.8bn, up 8% YoY. Note that its 9M16 sales grew 11% YoY to Bt7.5bn.

GM has room to grow from improved technology

STANLY plants were operating at utilization rates of 70% in 9M16 from 65% in FY15, whereas its new Lamp#7 factory’s run rate was 80% in 3Q16, up from 65% in 1H16 and from 60% in FY15. The new upcoming orders as mentioned could allow its run rate to improve to slightly above 80% in 4Q16 and FY17 through pulling back its orders for subcontracts to STANLY. Besides, the firm has also developed its products so that they are more value added (from Halogen electric lamps into LED) to improve sales and GM in 4Q16 and FY17. Note that the price of LED electric lamps is nine times that of Halogen electric lamps, management said. However, we have sustained our GM assumptions of 16% for FY16 and 17% for FY17. Note that its GM was 13.7% in 1Q16, 15.7% in 2Q16 and 16.5% in 3Q16.

Anticipated CAPEX of slightly over Bt1bn with debt-free position

STANLY keeps its CAPEX budget to about Bt1bn in FY16 and about Bt1bn in FY17 from the former Bt1bn (up from Bt1bn last year) for building new plant and modifying existing production lines to cater to demand shifts among major clients—Honda, Nissan, Mitsubishi and Toyota. The investment will be financed entirely by internal cash flows, STANLY said. The firm has cash on hand of more than Bt3bn and it is net debt free. Its CAPEX was Bt800m during 9M16.