Singer Thailand

The grassroots consumer product provider 12-month target Bt 24.00 Upside/Downside % 26.3

Action and recommendation

- Initiate coverage with Bt24 fair value. We initiate coverage of SINGER with fair value of Bt24, based on a DCF method (PER of 21.2 and a PBV of 4.7x). We like SINGER's position as a leader in the hire-purchase consumer product. Also, its new strategy of focusing more on commercial products should become a key sales driver in this period of strong provincial growth. Meanwhile, financial risk should be fully controlled; past failure will not easily be repeated. We expect SINGER's profit to grow strongly by 26% and 21% in 2013 and 2014, respectively. Apart from the growth, its valuation is attractive as it has the lowest PER and PBV in the commerce sector. Given this solid outlook and the attractive upside of 26%, we rate SINGER as Outperform.

Key investment points

- Outstanding business model. We like SINGER's unique business model, which provides direct sales of consumer products under the "SINGER" brand supported by hire-purchase plans, and has no direct competitor in most provincial markets. The company's well-known brand and product quality together with its strong distribution network across the country and fast direct-to-home after-sales service are key strengths. Moreover, its new strategy to focus more on commercial goods has high growth potential and lower financial risk compared with household products and makes SINGER the king of its league, in our view.

- Provincial market boom benefits SINGER. It is clear that the regional markets will be a key growth engine for Thailand in the next few years. In addition to the sizable populations in these areas, many supporting policies from the government will help increase the purchasing power of grassroots consumers, a major customer group of SINGER. We think the higher daily wage will work to the company's advantage, as it raises consumers' purchasing power, rather than a disadvantage since SINGER orders its products from OEM suppliers.

- Fully recovered from the crisis, low bad debt sign. The company was hit hard by a surge in motorcycle-related bad debts, which caused it to report net losses during 2006-2009 before its earnings turned positive in 2010-2011. We attribute this solid improvement to a good internal management and the introduction of a 3-filter process for HP approvals. Also its strategy to focus more on commercial products has proven to be the right one. Now many of SINGER's credit ratios have improved to a very good level. It has been able to increase its rate of collection accounts to 93.18% while NPLs as of 3Q12 were low at 4.7%. Past failure has clearly been a good teacher with regard to being careful about this kind of risk.

- Strong 38% CAGR of net profit in 2011-2014. We expect SINGER to be able to increase net profit to Bt371mn in 2014 from Bt142mn in 2011, or a 3-year CAGR of 38%. In addition to the top-line growth, which we expect at an average of 17% p.a. over the period, mainly driven by improved commercial product sales on higher billings per piece and higher growth opportunities compared with household products, benefits from increasing economies of scale should help reduce its SG&A to sales ratio. This, combined with lower interest charges and a tax loss carried forward, will help improve SINGER's 2014 NPM to 9.7percent from 6.0% in 2011.

Price catalysts

- Upside from the successful launch of two new subsidiaries: SLL and SSPL

Risk

- Urbanization of provincial Thailand, and S-T demand diluted by the first-car policy