SAT - 3Q24: Weak earnings

SAT reported a 3Q24 net profit of Bt159mn, plummeting 40% YoY but up 13% QoQ on seasonality. The YoY earnings drop reflected weaker sales and gross margin arising out of the auto production slowdown in Thailand. The poor results lead us to cut our forecast. We do not see a good reentry point for the automotive sector as a whole

since there are no clear signs of recovery. We maintain Underperform on SAT with a new end-2025 TP of Bt12/share.

3Q24: Weak earnings. SAT reported a 3Q24 net profit of Bt159mn, falling 40% YoY but up 13% QoQ on seasonality. The YoY earnings drop reflected weaker sales and gross margin arising out of the auto production slowdown in Thailand.

Highlights:

• Sales were weak at Bt1.9bn in 3Q24, down 21% YoY but up 8% QoQ. In the quarter, OEM parts for commercial vehicles shared 69% of sales, followed by tractors at 21% and passenger vehicles at 10%. OEM sales were eroded by the weak auto industry, with Thailand’s auto production down 21% YoY (but up 6% QoQ), dragged by sluggish domestic auto sales (-28% YoY) and auto exports (-15% YoY). Tractor production showed improvement with growth of 9% YoY and 17% QoQ.
• Gross margin was 17.2% in 3Q24, down from 19% in 3Q23 but up from 15.6% in 2Q24.
• SAT continues to hold a strong financial position with net cash and cash on hand of Bt1.5bn as of September 30, 2024.

Earnings cut. 9M24 core earnings were weak at Bt484mn, sinking 36% YoY, leading us to cut our 2024F core earnings forecast by 10% and 2025F by 11%. We expect the weak earnings to continue in 4Q24 with YoY and QoQ drops. We maintain our Underperform rating on SAT with end-2025 TP of Bt12/share (down from end-2024 TP of Bt13/share), based on PE multiplier of 7.5x or -1SD of its historical average since 2013. 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.

Risks. Risks are an economic slowdown that will erode auto demand, weak tractor production and rising raw material prices. We see the key ESG risk as environmental issues (E), but SAT is clearly moving on its sustainability development with committed targets.