Thai Stanley Electric

Q3 2013 earnings good, as expected

Thai Stanley Electric Plc (STANLY)

3Q13 profit in line with model

STANLY reported 3Q13 (October-December 2012) earnings of Bt442m, up 21% QoQ. Note that the firm reported a loss of Bt367m for 3Q11, due to flooding. The result was in line with our estimate, but 9% above the Bloomberg consensus. Gross margin was good, as expected. As such, net margin rose to 15percent from 12.8% the previous quarter. 9M13 profit represents 69% of our FY13 earnings projection.

Results highlights

Revenue increased by 3% QoQ and 156% YoY to Bt2.9bn, driven by major clients—Toyota, Honda, Mitsubishi and Nissan—who ramped up production in order to make up for output lost as a result of the flooding in late 2011. Note that the firm's newest (seventh) production line's capacity utilization rate rose to 30-40% during 3Q13 from 20% during 2Q13. Management expects the run rate to increase above 50% in 4Q13 (January-March 2013) and hit close to 100% next calendar year.

Outlook

We anticipate that the firm will deliver better QoQ earnings for 4Q13 in tandem with rising capacity utilization and vehicle production expansion among its major clients. We expect STANLY's new production line's run rate to rise fairly swiftly in the months ahead, pushing up its net margin to 16-17% in 4Q13 from 15% in 3Q13.

What's changed?

We maintain our FY13 (April 2012-March 2013) and FY14 earnings forecasts at Bt1.65bn and Bt2.0bn, respectively. Our net margin assumptions remain 16.6percent for FY13 and at 17.5percent for FY14; our assumptions factor in a rising run rate at the seventh production line in 3Q13 and 4Q13, as mentioned above.

Recommendation

We have rolled over our investment horizon from end-March 2013 (target price of Bt247) to end-March 2014 and have arrived at a new target price of Bt298, pegged to an unchanged FY13 PER of 11.5x (which is below the firm's last peak PER of 14.4x in 2004). We remain positive about STANLY's outlook, given its strong earnings performance for March-Dec 2012, greater capacity utilization in the quarter to come and the fact that the government has extended the delivery deadline for vehicles purchased under the first-time car buyer tax rebate scheme to end-June 2013. Our BUY rating stands.