Tisco analyst Jitima Aungmanee said the auto sector's outlook was bright as its results this year are expected to recover due to higher vehicle sales and wider gross margins.

She said the average gross margin of six selected auto stocks was estimated to be 18.7 per cent this year and 18.9 per cent in 2007.

Out of 19 auto stocks, the selected companies are Thai Storage Battery, Yarnapund, Thai Stanley Electric, Thai Rung Union Car, Aapico Hitech, and Somboon Advance Technology.

The auto stock index has declined because of a drop in gross margins due to higher costs of key materials: oil, steel, plastic and lead.

"But this year, the stock index will recover because an improving gross margin will support the auto sector's share price performance," said Jitima.

Moreover, prices of the key materials for these auto firms are likely to decline this year. Prices of steel and plastic are expected to fall by 5-10 per cent, with only lead prices expected to increase - by 3 per cent.

Car production has shown continuous growth. Tisco Research forecasts production to grow this year by 16 per cent to 1.3 million cars, mainly driven by Toyota. In 2006, Toyota's car sales are expected to rise by 26 per cent.

Jitima said Toyota was the key driver in the sector with expected capacity growth of 28 per cent in 2006, and another 22 per cent next year. Two of the selected six auto stocks recommended by Tisco Research are Somboon Advance Technology and Yarnapund.

Somboon Advance Technology is by far the largest local axle-shaft maker, with a market share of 91 per cent. Its earnings growth in 2006 is forecast at 32 per cent. The company's other products include leaf springs, and disc and drum brakes.

Yarnapund, the largest producer of exhaust systems, has 65-70 per cent of the local market. Its main clients are Toyota and Isuzu. Tisco Research forecasts its average earnings growth over the next three years at 21 per cent. 

Sasithorn Ongdee

The Nation