Smashing 4Q02 earnings due to Smash Junior

S. P. Suzuki (SPSU) reported very impressive 4Q02 results with net profit of Bt53mn or Bt0.67/share. Earnings were up 39.8% qoq and a big turnaround from last year's loss of Bt28.7. It was also higher than our previous estimate of Bt45.9mn.

For the full year 2002, SPSU posted net profit of Bt154mn (EPS of Bt1.95), representing an increase of 345%.

SPSU's 4Q02 sales increased 135% yoy and 31% qoq to Bt1,362mn due in part to the launch of a new model – Smash Junior – in October. Smash Junior has a list price of only Bt29,800, below the previous successful of Suzuki Smash's list price of Bt34,000-35,000. With the strong demand, orders outpaced Suzuki's current manufacturing capacity.

At the same time, Thailand's total motorcycle sales increased 69% yoy to 406,005 units in 4Q02. With Suzuki's sales rising by 151% yoy to 61,404 units in 4Q02, its market share jumped to 15% in 4Q02 from 13% in 3Q02.

For the full-year 2003, S.P. Honda expects the motorcycle market will grow by 35% to 1.8mn units. Assuming Suzuki can maintain its 15% share of the market this year, we expect Suzuki's sales will jump 56% to 270,000 units this year. As SPSU is Suzuki’s exclusive dealer in Thailand - apart from 14 provinces in the south – we estimate that its sales this year will climb 48% to Bt5,805mn while net profit will surge 79% to Bt276mn (EPS of Bt3.49).

SPSU's share price has already increased by 47% since the beginning of 2003. But with its strong growth prospects, the valuation is still not expensive with a low 2003 PER of only 5.19x, EV/EBITDA of 2.5x and P/BV of 0.62x. Moreover, the company sports a strong financial position with net cash. So, we maintain our recommendation of BUY with a target price of Bt23.

SPSU's income statement (Bt mn)

Note: COGs does not include Depreciation and Amortisation

• SPSU's 4Q02 sales were very impressive, expanding by 31% qoq and 135% yoy to Bt1,362mn. The two major factor driving SPSU's sales were the success of its new model and the strong growth in demand for the overall motorcycle market. In October, Suzuki launched Smash Junior, with a list price of only Bt29,800. By comparison, Suzuki's popular Smash model has a list price of Bt34,000-35,000. Demand was so strong that orders are currently outpacing Suzuki's manufacturing production capacity.

• The second factor is the very strong growth in overall demand for motorcycles. In 4Q02, motorcycle sales increased 69% yoy to 406,005 units. Within this strong growth market, Suzuki's motorcycle sales jumped by 151% yoy to 61,404 units, resulting in an increase in market share from 13% in 3Q02 to 15% in 4Q02.

• SPSU's hire-purchase income last year increased by 13% to Bt242mn, while hire-purchase accounts receivables increased by 22% to Bt625mn.

• SPSU's gross profit margin slightly improved to 9% from 8% in previous quarter and 7.1% the previous year despite the fact that of Smash Junior carries a lower list price. Meanwhile, selling and administration expenses of Bt181mn expanded 27% qoq and 157% yoy, roughly inline with sales growth.

• In 4Q02, the company recorded interest expenses fell to only Bt0.8mn. At the end of December, the company had total debt of only Bt42mn, compared with Bt169mn in 2001. With its cash on hand, SPSU is essentially in a net cash position.

• Using our PE Band model, we estimate that SPSU shares should trade at a PER of 6x, or Bt21. Based on our DCF model, however, the fair value for SPSU is slightly higher at Bt23.