Auto sector sluggish

Economy March 31, 2014 00:00


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By Asia Plus Securities Car production has been sluggish in early 2014, as the domestic automotive market has been dull, and automotive export has not grown much. As a result, in the first two months, car production dropped by 27.7 per cent year on year

Car production is expected to be 160,000-180,000 units per month in the first half (close to the second half of 2013), and rebound to 180,000- 200,000 in the second half of 2014. 
Overall, total 2014 car production is expected at 2.3 million units (lower than the Federation of Thai Industries’ target of 2.4 million), dropping 6 per cent from 2.45 million units in 2013. Full-year 2013 car production was high because some purchased under the government’s first-car scheme were transferred in the first half of 2013, while 2014 car production reflects actual demand (both domestic and overseas).
The FTI reported February car production at 173,506 units, falling 24.3 per cent year on year. Domestic car sales were 71,680 units, contracting 44.8 per cent year on year. A total of 97,171 units of completely built-up cars were exported in February, staying unchanged year on year.
Car production has been decelerating, affecting earnings forecasts of five auto-parts companies under our coverage. The auto sector’s first-quarter net profit is projected to slow down and decelerate further in the second quarter. 
The auto sector’s full-year 2014 net profit is projected at Bt3.26 billion, falling 9 per cent on year. Its investment sentiment is unattractive, not likely to outperform the Stock Exchange of Thailand. We recommend underweight for the auto sector. Top pick is AH (Aapico Hitech, fair value @ Bt21.18), as its valuation is the most attractive, and its P/E (price to earnings) ratio and PBV (price to book value) are as low as 8.4 times and 0.8x.
Siam Cement
By SCB Securities
We see an opportunity to accumulate after a 13-per-cent dip in Siam Cement’s share price, underperforming the Stock Exchange of Thailand by 2 per cent over the past 12 months, yet it is looking at another record high for earnings this year on the back of the upturn in the petrochemical cycle. 
In fact, the strong chemicals unit has led profit to beat estimates for four quarters in a row. Earnings momentum will cruise into the first quarter of 2014 on wider spread, seasonality, and no maintenance shutdown. At this level, valuation is compelling, trading at 12x 2014 price to earnings against three-year core earnings-per-share growth of 15 per cent. Buy with SOTP target price at Bt540.
First-quarter momentum continues strong. SCC’s profit has improved markedly and beat consensus estimates for four consecutive quarters, largely on outperformance at its chemical unit. We expect this positive momentum to continue through 1Q14F with even higher profit, growing year on year from widened chemical spreads (8 to 18 per cent year on year for PE/PP-naphtha spreads in 1Q14TD) and quarter on quarter on seasonally higher sales volume for all business units plus the absence of last quarter’s 45-day maintenance shutdown of MOC.
SCC’s share price has fallen 13 per cent, underperforming the SET by 2 per cent over the past 12 months. At this level, its risk-reward picture becomes attractive. Valuation-wise, SCC is trading at 12x 2014 PE against EPS growth of 15 per cent in 2014-16. .
Maintain “buy” with 12-month sum-of-the-parts target price of Bt540. Our SOTP target price consists of 8.5x EV/EBITDA for the chemical unit, 10.0x EV/EBITDA for the paper unit, 12.0x EV/EBITDA for the cement and building-material units, and 2.8x BV for its associated and related companies. We see the fall in share price as offering a good buying opportunity, backed by upcoming good 1Q14F earnings (late April 2014), robust LT earnings growth and compelling valuation.
Kiatnakin Bank (KKP)
By Asia Plus Securities 
We maintain our performance forecast for 2014-2015, projecting net profit in 2014 to drop 1.5 per cent year on year, based on conservative assumptions. Still, we project a business recovery in the second half if the political problem improves. In particular, the car-leasing business that has been at the bottom of this round of crisis should gradually revive in the second half of the year (loans will grow; debt provisions and losses from repossessed cars will decrease).
We recommend only holding KKP for its dividend of above 6-8 per cent per annum on average (paying semi-annually) in the next three years: 2014 fair value (GGM), at 1.02x price to book value and long-term return-on-equity forecast of 13 per cent, is Bt42, no upside left.
We estimate KKP’s 1Q14 net profit at Bt923 million, shrinking 10.3 per cent quarter on quarter and 20.6 per cent year on year and hitting a record low in seven quarters. Net interest income is projected to stay flat quarter on quarter because the net loan growth has been substantially lower than our FY2014 target of 8 per cent year on year and the company’s target of 10 per cent.
KKP maintained its net loan-growth target as it projected to see disbursement of one corporate borrower of B6 billion, which is 3 per cent of its current net loans, to help reduce risk of a downtrend.
First-quarter net interest margin (NIM) is estimated at only 3.65 per cent, decreasing 7 basis points from the previous quarter because loans have not grown.