Aapico Hitech

Q4 2012 earnings beat all estimates

Aapico Hitech Plc (AH)

Profit was 111% above our number

AH reported 4Q12 net earnings of Bt374m, a turnaround from a net loss of Bt663m in 4Q11 (flooding) and up 122% QoQ. The result beat our estimate and the Bloomberg consensus by 111%, due to an insurance payout of Bt55m and better OPEX management than modeled. FY12 earnings jumped to Bt917m (boosted by insurance payouts of 145m and better net margin management than assumed), which represents 127% of our earlier FY12 earnings projection.

AH announced both a cash dividend of 0.25/share and a stock dividend at a ratio of 5 existing shares for one new share (17% EPS dilution). The XD is set at 14 March 2013.

Results highlights

Sales rose by 158% YoY and 13% QoQ to Bt4.9bn. The 4Q12 top-line expansion was enabled to greater capacity at AH's main plant in Hitech Industrial Estate in order to supply rising demand from car makers for component parts to manufacture vehicles for both domestic and export sales. Gross margin dipped to 6.2percent from 6.6% the previous quarter. But AH's net margin jumped to 7.7percent from 3.9% in 3Q12 because of good OPEX management, mostly related to the new capacity and administration costs.

Outlook

We anticipate that the firm will deliver slightly weaker QoQ core earnings for 1Q13 (no insurance payouts).

What's changed?

We have revised up our FY13 and FY14 net margin projections to 4.8% and 5.3%, respectively, from 4.0% and 4.5% to factor the effect of rising capacity utilization (almost 100% in 4Q12, up from 85% in 3Q12). The net margin improvement prompted us to raise our earnings projections by 32percent for FY13 to Bt850m and by 36percent for FY14 to Bt1.05bn. AH's stronger earnings growth should roughly offset the dilution effect on EPS of its stock dividend.

Recommendation

Because of our profit forecast increases, we have upgraded our YE13 target price to Bt39.75 from Bt31, still pegged to a PER of 15x (up 2SDs from its FY07-12). AH currently trades at an FY13 PER of 12x (up 1SD). Given 22% upside to our new target price and scope for further earnings projection upgrades on new orders from Toyota and Isuzu in 2H13, our BUY rating stands.