AH - 3Q24: Weak as expected

AH reported a 3Q24 net profit of Bt205mn, down 59% YoY but up 99% QoQ, in line with market expectations. The YoY decline was due to weak sales from lower car production in Thailand, while the QoQ improvement was from a low base and higher equity income. The recommendation remains NEUTRAL with a revised end-2025 target price of Bt18/share.

Lining up with consensus, AH reported a 3Q24 net profit of Bt205mn, plunging 59% YoY on weak sales in tandem with a downturn in Thai auto production, but surging 99% QoQ off a low base and higher equity income. The poor results lead us to cut our forecast. We do not see a good reentry point for the automotive sector as a whole, including AH, since there are no clear signs of recovery. We stay Neutral with a new end-2025 TP of Bt18/share (from Bt18.5/share after earnings revision).

3Q24: Weak earnings as expected. AH reported a 3Q24 net profit of Bt205mn, as expected by consensus, plunging 59% YoY on weak sales in tandem with the downturn of Thai auto production, but surging 99% QoQ off a low base and higher equity income.

Highlights:

OEM parts sales (69% of sales) fell 19% YoY but rose 2% QoQ to Bt4.5bn, weighted by weaker operations in Thailand (-24% YoY but +10% QoQ) from the 21% YoY drop in auto production (up 6% QoQ on seasonality). Sales from operations in Portugal fell 4% YoY, with China dropping 10% YoY.
Car dealership revenue (31% of sales) slipped 1% YoY and was flat QoQ at Bt2.0bn. Operations in Malaysia were strong (+10% YoY and +11% QoQ) against weak operations in Thailand (-22% YoY and -20% QoQ). AH is restructuring its car dealership business in Thailand this year, closing the Changan dealership in April and all Ford dealerships in October, and plans to open Mitsubishi and MG dealerships this month.
Gross margin was 8.8% in 3Q24, down from 11.7% in 3Q23 but up slightly from 8.6% in 2Q24.
Equity income was Bt80mn in 3Q24, up 61% QoQ due to better operations at JV Purem AAPICO (49% held by AH).

Earnings cut. 9M24 core profit was weak at Bt613mn, plummeting 54% YoY, leading us to cut our core earnings forecasts by 23% in 2024 and 18% in 2025. We expect core earnings to continue to move down, with a YoY drop to continue through 1H25 upon no clear signs of industry recovery. A catalyst would be an improved economy, which in turn would boost domestic auto demand and HP loan quality, consequently allowing greater access to auto loans. This would clearly signal an approaching turnaround in the Thai automotive industry and earnings. We maintain Neutral on AH with a new end-2025 TP of Bt18/share (down from end-2024 TP of Bt18.5/share after revising earnings), based on PE multiplier of 6.2x or -1SD of historical average since 2013.

Risks. 1) Economic uncertainty derailing auto demand, 2) semiconductor shortages that disrupt auto supply chains, 3) litigation cases. We see the key ESG risk as environmental issues (E), but AH is clearly moving on its sustainability development with committed targets.