Carmaking may slow slightly
Automotive production may enjoy a reduced expansion rate of 9 per cent next year, down from 10 per cent this year, sparking higher competition among auto-manufacturers, Ayudhya Securities says.
The securities company said such conditions would force carmakers to try and maintain production costs by pressuring local parts-manufacturers to lower their prices, thus depriving parts-makers of the full benefits of factory expansions undertaken.It also said that this situation would leave parts-manufacturers unable to pass on the higher costs of steel and plastic to auto-manufacturers. "Thus the profit margins of most auto-parts makers will drop, and so will their net profits," it said. Ayudhya Securities predicted that Thai Stanley Electric would have the highest immunity to the adverse effects. Thai Stanley maintains a research centre to increase its products' value and its bargaining power. Coupled with a diversified customer base, Thai Stanley is expected to maintain its profitability. Its profit margin next year is estimated at 20.9 per cent while its net profit should increase 13 per cent year on year to Bt1.16 billion. Regarding Aapico Hitech, despite lower profit margins in 2005 and 2006, the company should benefit next year from new orders worth Bt1.1 billion. Including the results of KPN Automotive, Aapico should see an annual profit growth rate of 56 per cent that will lift the company's profits to Bt724 million. Meanwhile, Somboon Advance Technology will be sensitive to higher steel prices and sales revenue that will not compensate for the depreciation cost of its new factory. In the first nine months of this year, auto production expanded 10.6 per cent year on year to 899,000 units, thanks mainly to export markets, which expanded 28 per cent year on year to 398,000 units. Remarkably, the Middle East market expanded 74 per cent. During the same period, the domestic market posted a 3.2-per-cent drop on last year to 488,000 units due to the declining economy and unclear political situation as well as high oil prices in the first half of the year. Sales in September dropped 10.4 per cent year on year due to floods in many provinces, the effects of which are expected to linger into October, said Ayudhya Securities. "Still, the domestic market should improve in November and December and perform better than in previous months due to the receding waters as well as new promotions and higher confidence in the economic outlook," the securities company noted.
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