AAPICO Hitech, an original equipment manufacturer (OEM) of automotive parts, which previously forecast revenue growth of 5 per cent this year, now expects it to decline by 10-15 per cent, while profit will also be lower because of the sluggish economy.
However, it says it hopes the economy will improve in the second half of this year under the administration of the military-run National Council for Peace and Order.
The Thai automotive industry this year was adversely affected by various factors such as the weak domestic economy and political instability, which hurt the confidence of foreign carmakers that rely on Thailand as a manufacturing base. Hence many local parts manufacturers expect production outputs this year to fall short of targets.
AAPICO president and chief executive officer Yeap Swee Chuan said the Thai automotive industry this year was likely to contract by 10 per cent, with its own operating results projected to be 10-15 below last year’s. And it expects net profit to plunge by an even greater degree.
The political instability disrupted the state policies supporting the automotive industry, especially the eco-car project. Automotive exports continue to grow, but at a lower rate than last year.
Although it hopes the coup-makers will be able to get the economy moving again, AAPICO is cutting its production costs, including for human resources, and improving productivity to alleviate pressure on the bottom line.
It has set an investment budget for this year at Bt500 million to 600 million to upgrade or buy new machinery and equipment, Yeap said.
AAPICO continues to look for foreign business alliances for joint investment projects in China, India, Indonesia and Malaysia because of the growth potential in those markets. It already has joint-venture projects with Japanese and Portuguese interests.
The company still plans to set up factories abroad to spread its business risks, but will not relocate its production facility from Thailand, which has skilled workers, needed resources and a growing automotive industry. Thailand should continue to be an automobile-manufacturing base for foreign investors for the next 10-20 years.
Maybank Kim Eng Securities (Thailand) has revised its projection for AAPICO’s sales growth for 2014, expecting them to drop by 5 per cent from last year’s figure, while net profits should drop by 15 per cent to Bt519 million, which is a conservative projection.
However, the company’s first-quarter profit accounts for 29 per cent of this year’s estimate, with the second quarter being the lowest point, before the situation improves in the second half of this year. Hence, profit this year could exceed expectations.
The company’s risk factors are the state of the local automotive industry and the weakening of domestic demand, which exceeded projections. The automobile manufacturers are likely to ask for price reductions from OEM parts makers every year. Hence investors should acquire AAPICO’s shares for trading buy, as the current share price is still below the book value at Bt17.60 per share, Maybank Kim Eng advised.
AAPICO’s first-quarter operating results showed improved profit of Bt153 million, or Bt0.47 per share, over the Bt1 million profit generated in the fourth quarter of 2013, thanks to cost-reduction measures. First-quarter sales improved over the previous quarter by 6 per cent at Bt3.57 billion, but were 21 per cent lower than in the same period of last year.
Profit margin improved by 6.1 per cent from the 4.7 per cent in the previous quarter, but was lower than last year’s because of a lower production utilisation rate.
The company was able to control its sales and administration expenses well at Bt173 million, while interest expense dropped to Bt56 million. Other incomes in the first quarter were Bt117 million.