P.C.S. Machine Group Holding

P.C.S. Machine Group Holding Plc (PCSGH)  

Earnings in 4Q15 below our expectation

PCSGH posted a 4Q15 net profit of Bt65m, down 26% YoY and 55% QoQ. The result was 45% below our estimate and the Bloomberg consensus, due lower sales than assumed and a GM squeeze. Sales figures for 4Q15 were 13% short of our projection. FY15 earnings represent 77% of our projection.

Results highlights

Revenue inched up 6% YoY but fell 13% QoQ to Bt932m. The top line was 13% below our estimate despite the fact that the demand among major carmakers for parts to build vehicles grew 2% YoY and local car sales rose 5% before the implementation of the new excise tax in FY16. This was attributable to a slowdown in direct exports (5% of total sales) to Brazil. Therefore, PCSGH reported the poor GM of 10.5%, close to the same period last year but down from the 16.6% marked in the previous quarter (we had modeled for 16.5%). Likewise, 4Q15 net margin was 7.0%, down from 10.0% the same period last year and from 13.7% in previous quarter (we had assumed 11%).

Outlook

We anticipate that 1Q16 profit will be down moderately from poor sales and higher OPEX on new investment for fresh car models.

What’s changed?

We have cut our FY16 earnings forecast by 23% to Bt615m to reflect poor sales and lower GM this year.

Recommendation

Again, we view that the Thai automotive industry will be weak in 1H16 before recovering in 2H16, a recovery to be led initially by exports followed by stronger consumption spending in 2H16. PCSGH’s earnings improved in 2H16 after weakness from new investment in 1H16. Thus, share price risk from here on remains. The earnings cut has prompted us to cut our YE16 target price of PCSGH from Bt6.2/share to Bt5.2/share pegged to PER of 12.8x. Our HOLD rating stands. Among the Automotive sector space, we prefer SAT because of its cheaper valuation and lower FY16 PE of 8.3x.