We estimate AH’s core earnings at Bt321mn in 2Q23, up 15% YoY but down 46% QoQ. Despite lower equity income - nothing from Hyundai Motors (Thailand) - we believe AH will deliver YoY earnings growth on growing OEM operations and a wider gross margin; the QoQ earnings drop is seasonal. Valuation is undemanding and good dividend yield cushions price downside. Our 3-month tactical call is Outperform; end-2023 TP is Bt44/sh.
2Q23 preview: Up YoY but down QoQ. Excluding FX gain/loss in 2Q22 and 1Q23, we estimate AH’s core earnings at Bt321mn in 2Q23, up 15% YoY but down 46% QoQ. Despite lower equity income - nothing from Hyundai Motors (Thailand) - we believe it will deliver YoY earnings growth underwritten by growing OEM operations and wider gross margin; the QoQ drop is seasonal.
Key assumptions are: 1) sales of OEM operations (75% of total sales) of Bt5.3bn, up 18% YoY on continued production of new orders in Thailand (e.g. axle shaft assembly, battery shield and body panel) but down 10% QoQ, 2) car dealership sales (25% of total sales) of Bt1.8bn, up 11% YoY but down 17% QoQ, 3) gross margin at 11.2%, up from 10.1% in 2Q22 but down from 12.6% in 1Q23, aligning with the sales trend and 4) equity income at Bt65mn, down 47% YoY and 47% QoQ, due to no contribution from Hyundai Motors (Thailand). It will release results on August 11.
Earnings forecast maintained. Our 2Q23 preview suggests 1H23 core profit will account for 50% of our full-year forecast and we maintain our core earnings projection of Bt1.8bn in 2023, up 8% YoY. AH’s recent investment in 60% of Advanced Vehicle Engineering Global Sdn. Bhd. (Avee), a Malaysian auto parts company, with the remaining 40% held by a subsidiary of Proton Holdings Berhad (Malaysia’s national car brand) will add an insignificant ~2% to our projected 2023 revenue. However, in the future, we view this cooperation with a local partner like Proton will enhance AH’s presence in Malaysia, which is one of ASEAN’s major auto production bases.
Undemanding valuation and good dividend yield. AH is trading at 6.6x 2023PE, lower than SAT’s 7.8x and STANLY’s 8.1x. We estimate its dividend on 1H23 operations at Bt0.75/share, 2.2% dividend yield. We view AH’s valuation as undemanding and the good dividend yield will cushion price downside. We like AH’s global presence in the world’s important production bases: Thailand, Portugal and China, with growing EV exposure. Our end-2023 TP is Bt44/share based on 8.6x PE (average for 2017-18 when AH’s earnings growth was normalizing).
Risks. 1) Economic uncertainty derailing auto demand, 2) semiconductor shortages that disrupt auto supply chains, 3) litigation cases.
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