STANLY – 1QFY24: Below market estimates

STANLY reported a 1QFY24 (April-June 2023) net profit of Bt315mn (flat YoY but down 44% QoQ); excluding extra FX gain, its core profit was Bt303mn (flat YoY but down 47% QoQ), below market estimates on a lower gross margin. We expect core earnings to grow YoY in 2QFY24 (July–September 2023), driven by new orders that are ramping up and increase QoQ on seasonality. Neutral with end-2023 TP of Bt216/share, based on 9x PE.

1QFY24: Below estimates. STANLY reported a 1QFY24 (April-June 2023) net profit of Bt315mn (flat YoY but down 44% QoQ); excluding extra FX gain uncovers a core profit of Bt303mn (flat YoY but down 47% QoQ). It missed market estimates by 11% on a weaker gross margin. The flat earnings YoY reflected higher equity income sufficient to offset the lower gross margin while the earnings drop QoQ was due to seasonality.

Highlights.

• Sales were Bt3.3bn in 1QFY24, inching up 1% YoY (but falling 18% QoQ on seasonality). This is weaker than industry growth: Thailand’s auto production grew 6% YoY (but fell 18% QoQ).
• Gross margin was weak at 15.3% in 1QFY24, down from 16.7% in 1QFY23 and 21.1% in 4QFY23, due to higher depreciation expense and less efficiency because of the slow sales growth.
• STANLY’s financial health remains strong. It is debt-free and has cash on hand of Bt8.6bn as of June 30, 2023. Note that this will be reduced by Bt1.5bn after it pays a dividend on July 21.

Earnings forecast maintained. 1QFY24 results accounted for 16% of our full-year forecast and we maintain our forecast of core profit of Bt1.9bn, 8% growth. We expect core earnings in 2QFY24 (July–September 2023) to grow YoY driven by new orders that are ramping up in 2Q-4QFY24 and increase QoQ on seasonality.

Neutral rating. Our end-2023 TP is Bt216/share, based on 9x PE. We maintain Neutral on STANLY in view of its moderate earnings growth. We like STANLY’s sound fundamentals as its technology is compatible with EVs and it is exploring the production of lamp sets for EV makers such as MG, GWM and BYD, but it has not detailed a concrete plan yet.

Risks. 1) Economic uncertainty and 2) rising raw material prices.