Recommendation BUY
Price Target Bt 6.0 (+27%)
Median Consensus: Bt 4.1
Stock information
Price Bt 4.74
12 Month Range Bt16.1/3.82
Market Capitalization Bt 1,422 m
Share in issue (Par1) 300 m
Book Value/share (Y09) Bt8.54
Free Float 32.13%
Foreign Limit/Available 49%/34.75%
NVDR in hand (% of shares) 1.64%
Average Volume (‘000) 757.39
Sector
Sector Automotive
Trend Negative
Weight Underweight
Group EPS Growth 2008A 2009F
+7% -49%
1Q09 inline – upgrade to BUY
SAT reported inline-with-expected poor 1Q09 net profit at Bt25mn, down 86%yoy and 75%qoq. Sharp decline in sales and squeezed gross margin was key reason for poor earnings. However, we believe that current share price has already priced in negative issues, and we expect profit recovery in late this year. Moreover, auto industry might has been hit the bottom already, and recovery may begin soon. Hence, we upgrade the stock from HOLD to BUY with new target price of Bt6.0.
- Poor 1Q09 earnings as expected: SAT’s 1Q09 net profit dipped 86%yoy and 75%qoq to Bt25mn. This result was inline with our expectation. Sales declined substantially 33%yoy and 35%qoq due mainly to lowering orders from customers. Gross margin decline from average 19.9% last year to 13.8% only as a result of lower economy of scale and higher depreciation from new plant. A Bt19mn extra-expense from early-retired program also depressed its earnings. However, we believe that 1Q09 earnings would be the bottom of the year, and we expect its earnings to gradually improve in following quarters.
- 2Q09F earnings would improve: Even though sales volume would continue declining slightly in 2Q09, we believe that SAT’s 2Q09F earnings would improve qoq. SAT has already implemented various programs to cut both operation and admin cost, which would help reduce operating cost by around Bt10m/month. Full effect of such programs will be seen in this quarter. Also, SAT booked Bt19mn extra-expense from early-retired program in 1Q09, which will not occur again. We conservatively expect SAT’s 2Q09F earnings at around Bt50mn.
- Industry might be at the bottom: Even though if we compare car production volume in this year with last year, production volume would decline sharply. We believe that current situation look better than early this year. 1Q09 car sales (domestic + export) dropped 31% to 246,612 units, while car production declined in a faster pace by 46% to 198,792 units only (Table 3-4). This implied that current car inventory of car maker has reduced by 47,820 units in 1Q09. We believe car maker will start stockpiling again. Toyota Motor Thailand has just rehired its worker again in early May. This would be the sign of elapse of the bottom. After talk with management in the last meeting, SAT’s production would be the bottom at April and will gradually improve.
- Trading at low-end valuation: SAT is now trading at 4.4x 2009F PER only, while we expect a turnaround of earnings in 2010F with a high growth rate of 27%. EV/EBITDA now is just 3.74x, while PBV is 0.49x only. Its cash flow is expected to remain strong with D/E ratio of 1.27x. Also, there is no plan for another expansion, implying no need for heavy CAPEX. We believe that various negative issues have already priced in, and we expect improving sentiment in automotive industry. Thus, we then upgrade the stock from HOLD to BUY with new target price of Bt6.0 (from Bt4.3). Our new target price is based on 5.5x 2009F PER (from 4.0x), which still be below its historical average PER of 7.4x (Chart 1-2).
Recommendation & Valuation: Even though recent strong rally of 43% in two months, SAT share price still declined 70% from peak in May 08. We believe that various negative issues, such as poor earnings, have already priced in, and we are now turning more positive on Auto Industry. The expected of bottom out of its earnings and auto industry as well as strong stock market sentiment would be the key driver for share price. Current share price is still trading at deep discount. We upgrade the stock to BUY with new target price of Bt6.0. Key risk is further deterioration of domestic and global economy.
By Trinity Securities Company Limited on May 15, 2009
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