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Thai Stanley Electric

3Q14 profit slightly below our estimate

Thai Stanley Electric Plc (STANLY)

3Q14 profit was 3% below our expectation and the consensus

STANLY posted 3Q14 (Oct-Dec 2013) earnings of Bt335m, down by 2% YoY and 8% QoQ. The number was 3% below our estimate and the Bloomberg consensus, due to a higher corporate tax rate than modeled. The effective 3Q14 tax rate was 22.8% (we had expected 20%). Financial-year 9M14 profit represents 74% of our FY14 earnings projection.

Results highlights

Revenue declined by 16% YoY and 5% QoQ to Bt2.5bn, as lower domestic car sales and production (with the end of deliveries under the first-time car buyer scheme in June 2013) meant smaller orders from the major auto-makers. Note that Oct-Dec 2013 vehicle output in Thailand declined by 22.6% YoY and 10.6% QoQ to 527k units.

STANLY's newest (seventh) production line's run rate was 80% in 3Q14, flat QoQ. Management expects it to approach 90% by March 2014. Note that 3Q14 gross margin inched up to 21.2percent from 20.3% the previous quarter, despite lower revenue, due to efficiency improvements.

Outlook

We anticipate that the firm will deliver a slight QoQ earnings increase for 4Q14 (Jan-March 2014), led by a greater emphasis on direct exports and new orders from Mitsubishi and Toyota.

What's changed?

We maintain our FY14-15 earnings forecasts unchanged.

Recommendation

Although the January-March outlook for automotive production is subdued, given slowing consumption and the absence of the first-time car buyer scheme, we expect vehicle output to recover the following quarter on the launches of new models and rising export sales. We, thus, are positive about STANLY's prospects—rising capacity utilization and new orders from Mitsubishi and Toyota for new models. Our BUY rating stands.




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