STAMFORD TYRES (STC SP) - UOB Kay Hian 2017-08-15: Blast From The Past

STAMFORD TYRES (STC SP) - UOB Kay Hian 2017-08-15: Blast From The Past STAMFORD TYRES CORPORATIONLTD S29.SI

STAMFORD TYRES (STC SP) - Blast From The Past

  • After years of flying under the radar, Stamford Tyres Corporation (STC) is poised to reap the benefits of a lengthy exercise to streamline operations. Earnings momentum is likely to be maintained in FY18 as loss-making territories start to gain more traction and as top-line growth resumes based on the 2HFY17 trend. 
  • STC presents a nice margin of safety as the RNAV of its properties is expected to be worth S$80m-90m.
  • Investors can look forward to being rewarded in tandem with the success of the company.



VALUATION


Attractive valuation as peers’ trade at 10.9x FY18F PE. 

  • Should Stamford Tyres Corporation (STC) be able to sustain its earnings momentum from 2HFY17 into FY18, net profit could likely range from S$10m-11m. 
  • From a P/B perspective, STC is trading at 0.66x FY17F P/B. Should STC revalue their properties, it would likely trade at a much bigger discount to the current book value.


INVESTMENT HIGHLIGHTS


Earnings momentum to continue into FY18. 

  • In 2HFY17, STC’s net profit came in at S$5.1m. Given the absence of any seasonal effects and based on a back-of-the-envelope calculation, STC’s FY18 net profit could come in at S$10m-11m. 
  • Over the last few years, STC had undergone many operational changes such as natural forex hedging in locations where it is expensive or impractical to hedge forex risk and being more inventory-light by rationalising excess inventory over the last few years. 
  • STC’s management has also carried out margin enhancement initiatives from FY15-17. Even though sales declined from S$292.5m in FY15 to S$235.8m in FY17, gross margin improved dramatically from 22.3% in FY15 to 27.4% in FY17 as STC pursed more value-added activities. 
  • FY18 could be the year in which STC returns to revenue growth.

Properties undervalued on balance sheet. 

  • STC has quite a number of properties owned by the group especially in main markets where the group operates (Singapore, Malaysia, Thailand, Indonesia and South Africa). 
  • STC does not revalue the properties on its balance sheet. Properties on its balance sheet could be worth as much as S$80m-90m vs its property book value of about S$50m.

Minority shareholder-friendly management. 


Compelling valuations vs peers. 

  • With peers such as Apollo Tyres and YHI International trading at an average FY18F PE ratio of 10.9x, a fair value of between S$0.46-0.50 for STC is justified on the basis that STC records a net profit of S$10-11m in FY18. 
  • Furthermore, STC is trading at only 0.66x FY17F P/B and should the properties be revalued, the discount to book would be much wider.


About Stamford Tyres Corporation

  • Stamford Tyres Corporation (STC) is the exclusive distributor of Falken brand tyres in Singapore, Malaysia, Thailand and Indonesia which form the core markets for the company. The Group also has its own proprietary brand of tyres and wheels under the Sumo and SSW brand respectively.
  • STC’s core markets are in South East Asia with Singapore, Malaysia, Thailand, Indonesia and Vietnam accounting for 85% of total FY17 sales. South Africa and Australia accounted for approximately 13% of sales while the balance of sales coming from export-driven markets such as the European Union, the Middle East and Latin America. STC operates in Hong Kong through a joint venture (Tyre Pacific (HK) Limited) with Tan Chong International.



NOT RATED
Target Price: N/A



Nicholas Leow UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-15
UOB Kay Hian SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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