Unimpressive 1Q03 results expected

After an analyst meeting with Aapico Hitech (AH) yesterday, we don't expect the company's 1Q03 results to be very impressive due to lower-than-expected sales of high-margin jigs. Other sales – auto parts and Ford dealership car sales – are growing in line with the industry, but these products generate much lower margins than jigs.

The company has new orders on hand totaling Bt175mn. In 1Q03-2Q03, the company should book jig sales worth Bt86.2mn, dies Bt35mn and OEM auto parts Bt54mn.

For the full year of 2003, the management expects AH's sales will grow by approximately 20-30% for all of its product growths. However, we are maintaining our conservative forecast of 15% sales growth to Bt1,925mn, which would generate earnings of Bt172mn (EPS of 4.11), up 30% from the previous year.

Since we aren't expecting to see very good 1Q03 results but still believe the company's future earnings prospects are good, we can recommend AH only as a BUY ON WEAKNESS. We recommend investors to pick up the stock at around a 20% discount to our value estimate of Bt38, or around Bt30.

AH's Income statement (Mn Bt)

Note: COGs does not include Depreciation and Amortisation

• The management expects AH's sales this year will grow in line with the overall auto industry, or around 20-30%. The company is planning for growth to be across the board for all of its product lines, including jigs, dies, auto parts and Ford sales. AH is also benefiting from the trend for major car manufacturers to set up or expand their production base in Thailand for the export market.

Structure of Revenue and Forecasting (Unit : BtMn)

Source: AH

Product Gross Margin

Source : AH

• AH currently has new orders on hand totaling Bt175mn. In 1Q03-2Q03, the company expects to book jig sales worth Bt86.2mn, die sales of Bt35mn and OEM auto parts sales of Bt54mn. For high-margin jigs, the company is currently working on only two small projects – Ford India worth Bt10.5mn and Volvo Thailand worth Bt16mn.

New Projects in hand

• AH has broadened its client base for OEM auto parts. Over the last three years, AH's major client was AAT (Ford & Mazda), which accounted for about 80% of AH’s OEM auto parts. In 2002, however, AAT’s ratio had fallen to 46%, with Toyota accounting for 17%, Honda 11% and Isuzu 9%.

• AH should record high growth in its OEM auto parts business (30% of total AH's sales) this year. The company has got orders in hand from Isuzu D-Max, Toyota Soluna Vios and Honda City. Management also expects more orders for Isuzu D-Max’s export version, the Honda City 5-door model and the new Honda Accord. This will reduce AAT’s portion to 40% while the portion for Toyota, Honda and Isuzu will increase further.

• AH plan to invest in a new plant for auto parts. The total project will require an investment of Bt500mn – Bt140mn for the plant, Bt45mn for land and Bt315mn for machinery. AH already has 45 rai and will need to acquire only another 15 rai. The company will invest approximately Bt250mn in 2003 and the remaining Bt250mn in 2004.