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Thai Stanley Electric

Profit missed estimate, as insurance payout was short of expectation

Thai Stanley Electric Plc (STANLY)

4Q14 profit was 13.5% below our estimate

STANLY posted 4Q14 (Jan-March 2014) earnings of Bt402m, down 17% YoY but up 20% QoQ. The number was 13.5% below our estimate but was 15.1% above the Bloomberg consensus. The bottom-line disappointment was due to a lower gain on an insurance payout than assumed. During the quarter, STANLY booked an insurance payout of only Bt135m for business interruption (caused by 4Q11 flooding); we had expected Bt200m. Thus, FY14 earnings dropped 7% YoY to Bt1.49bn, which represents 96% of our FY14 projection.

Results highlights

Revenue declined by 20% YoY and 3% QoQ to Bt2.4bn, due largely to lower domestic car sales and production with the end of deliveries under the first-time car buyer scheme in June 2013. Note that 1Q14 vehicle output declined by 28% YoY and 1.8% QoQ to 517k units.

STANLY's newest (seventh) production line's run rate was 70-80%, up from 50% in 3Q13 (Oct-Dec). The firm expects it to approach 90% by June 2014. Note that 4Q14 GM rose to 22.3percent from 21.2% in 3Q14—despite lower revenue—because of better efficiency.

Outlook

We anticipate that the firm will deliver a YoY earnings drop for 1Q15 (April 2014-June 2014), due to lower YoY auto production. However, its operation should improve in 2H15 (October 2014-March 2015) in tandem with expansion of direct exports and new orders from Mitsubishi and Toyota.

What's changed?

Our FY15-16 earnings forecasts stand unchanged.

Recommendation

Although the April-June outlook for automotive production is weak, given slowing consumption and the absence of the First-time Car Buyer Scheme, we expect vehicle output to recover somewhat the following quarter on the launches of new models and rising export sales. We are positive about STANLY's prospects—rising capacity utilization and new orders from Toyota and Mitsubishi for new models. Our BUY rating stands.




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