STANLY - 2QFY25: Beat consensus

STANLY reported a 2QFY25 (July–September 2024) net profit of Bt327mn (down 34% YoY but up 6% QoQ), beating market estimate by 44% on strong gross margin, high dividend income and higher equity income. Excluding extra items, core profit was Bt526mn, up 9% YoY and 73% QoQ. Although we appreciate its good control over costs, the weak sales picture due to the downturn of the Thai auto industry raises concerns about the sustainability of profit growth. In view of the unattractive risk/reward, we rate Underperform with an end-2024 TP of Bt192/share.

2QFY25: Beat consensus. STANLY’s 2QFY25 (July–September 2024) net profit was Bt327mn, down 34% YoY but up 6% QoQ, beating market estimate by 44% on a strong gross margin, high dividend income and high equity income. Excluding extra items of a Bt218mn impairment loss on assets from merging factories to improve efficiency and a Bt31mn FX loss, core profit was Bt526mn, up 9% YoY and 73% QoQ.

Highlights.

In 2QFY25, sales were Bt3.2bn, down 14% YoY, pulled down by the weak auto industry, but up 8% QoQ on seasonality. In the quarter, Thai auto production dropped 21% YoY but increased 6% QoQ.
Gross margin is a strong point at 21.3% in 2QFY25, up from 16.3% in 2QFY24 and 18.4% in 1QFY25, underwritten by lower depreciation expense and good controls over costs while sales are sluggish.
Dividend income was Bt127mn, stable YoY. Equity income was Bt105mn, up 20% YoY and 12% QoQ.

Maintain forecast. 1HFY25 results accounted for 53% of market consensus and 56% of our full-year forecast and we leave our projection unchanged. In 3QFY25 (October–December 2024), we expect core earnings to be flat YoY but down QoQ on seasonality and no dividend income.

Underperform. Although we appreciate its good control over costs, the weak sales picture brought by the downturn of the Thai auto industry raises concerns about the sustainability of profit growth. 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 assign a 3-month tactical call of Underperform on STANLY with an end-2024 TP of Bt192/share (based on a PE multiplier of 9.5x or -0.5SD of historical average since FY2010).

Risks. Risks are an economic slowdown that will erode auto demand and rising raw material prices. We see the key ESG risk as environmental issues (E) and STANLY intends to reduce the risk.