Delays in Isuzu D-MAX model depress 4Q02 results

Thai Rung Union Car (TRU) reported 4Q02 earnings of just Bt19mn, down 77.5% qoq and 82% yoy. The major factor behind its disappointing results was further delays in the launch of Isuzu-based station wagons, with customers waiting for the new D-MAX-based models. TRU is still in the process of setting up its research & development department and producing dies and jigs for production. The company hopes to start production of the new models in 2Q03. The delays have also taken a bite out of TRU’s auto parts sales.

Although we expect more weak results in 1Q03, TRU should see a turnaround during the April-June period when it launches the D-MAX-based models. These are expected to boost total sales from 3,786 units last year to 6,000 units.

With the company adding two new customers in China, we believe that SKD exports will rise to 3,000 units in 2003 from 1,300-1400 units in 2002. In addition, TRU’s sales of OEM parts will recover when GM Thailand begins production of D-MAX for export. Accordingly, we expect TRU’s sales next year will increase 28% to Bt3,746mn and net profit by 66% to Bt671mn.

TRU's share price has slumped 36% since hitting an all-time peak of Bt12.50 last May. Its financial position remains strong, however, given its debt/equity ratio of only 0.03x. TRU is currently trading on a 2003 PER of 5.96x, EV/EBITDA of 2.79x and P/BV of 1.51x. Despite its cheap valuation, we are maintaining our HOLD recommendation as 1) earnings are expected to remain weak for one more quarter; and 2) we want to gauge the market’s response to the new Isuzu-based station wagons after their launch in 2Q03.

TRU's income statement (Mn Bt)

Note: COGs does not include Depreciation and Amortization

• 4Q02 sales fell 13.2% qoq and 18.2% yoy to Bt623mn due mainly to delays in the launch of Isuzu-based station wagons. This also hurt the sale of parts for Isuzu vehicles. Meanwhile sales of auto part & SKD kits were also affected by production problems with one of TRU’s major customers in Sudan.

TRU's Revenues Breakdown

• TRU’s gross margins narrowed to 23.5% in 4Q02 from 34.2% in 3Q02 and 34.6% in 4Q01. This was largely due to lower sales of modified vehicles, which normally capture high margins, to car sales.

• Sales and admin expenses fell 1.3% qoq and 11.7% yoy in line with lower sales. Interest expenses in 4Q02 were a negligible Bt0.4mn due to TRU's very low debt to equity ratio of 0.03x.

• TRU announced a dividend of Bt0.6/share, representing an attractive yield of 7.5%.