August 20, 2019
Thai Stanley Electric (SET:STANLY)
Quick Summary:
Thailand
listed Thai Stanley is an automobile lighting/lamp manufacturer with dominant
market share domestically (Thailand) in motorcycle lamps (halogen & LED)
with close ties to Honda and Yamaha. 33% owned by Japanese listed Stanley
Electric which provides R&D and electronics.
Trading at Thai
stock exchange at 15.32 billion baht (USD 500M), Thai Stanley has 4.76 billion
(USD 150M) in cash and earns almost 2 billion (USD 65M) in income on 14 billion
baht (USD 455M) of sales.
Approximately
7x PE; 5x excluding cash. No debt. Dividend policy requires 33% of profits to
be paid out and Thai Stanley has had a long reliable history of paying it out.
Over 90% of its revenue is comes from selling Auto lamps.
36% of Thai Stanley is owned by Tokyo listed
Stanley Electric (supplies automotive lighting mainly to Honda and Yamaha,
Honda owns 5.6% shares in Stanley Electric) + 13% by the Thai CEO (Lee-Issaranukul
family owns 25% of Thai Stanley and a portion of Sittipol 1919). Members of
management hold 29% of the shares. Stanley has about 2,500 employees.
Tangible
Book: 12,800,000,000 baht (USD 400M)
Tangible
Book USD 400M = 200M (fixed assets) + 200M (working capital)
Working
Capital: 5,800,000,000 baht (USD200M)
Working
Capital – Cash: 1,040,000,000 baht (34 to 50M)
Fixed Assets
breakdown:
Total = 6,400,000,000
baht (USD 200M)
= 6 Lamp Factories in Thailand + 2 under construction+ Die
& Mold plant + New Mold plant + R&D plant + halogen bulb plant
Land - 1.33B
baht (USD 40M)
Land &
Building Improvements - 640M Baht (USD 20M)
Buildings -
800M Baht (USD 25M)
Machinery
& Equip. and factory tools - 1.6B baht (USD50M)
Machinery under installation & progress -1.6B
Baht (USD50M)
Molds - 480M Baht (USD 15M)
Vehicles & office equip. - 32M Baht (USD1M)
Total = 6.4B Baht
(USD 200M)
J.V & Associated
companies:
50% Laos Stanley Electric
20% Vietnam Stanley Electric
15% Asia Stanley International
15% Sirivit Stanley Co., Ltd.
13.9% Top Hightech (Thailand) Co.
10% Stanley Electric India, Ltd
10% P.T Indonesia
10% Stanley Electric
Holding Europe
1.73% Lumax (India)
0.2% in Inoue Rubber (Thailand) Public Company Limited
Deployed Capital – 23.5B Baht (USD 750M) with 1.6B
Baht (50-70M) Return.
Thai Stanley Company Introduction
Thai Stanley Electric Public Company Limited was first
registered as a limited company on 30 May 1980. Thai Stanley Electric is an
automotive (motorcycles & cars) lighting manufacturer founded on a joint
venture between a Japanese company, Stanley Electric ltd and a Thai company,
Seng Nguan Hong Ltd., or Sittipol, an automobile parts distributor. Sittipol
was owned by the Lee-Issaranukul family. Sittipol, a car replacement parts
distributor, is known as The Sittipol 1919 Company Limited, as it was founded in
1919.
On 10 May 1991, Thai Stanley was listed on the SET, under
the abbreviation ‘STANLY’. The current registered capital is Baht 383.125
million divided into 76.625 million ordinary shares at a par value of Baht 5
each, which was all issued and paid up.
There are 3 major facilities to support automobile lighting—
light bulbs, lamps, and molds. Thai Stanley’s bulbs and die and molds are much
smaller than its lamp sales, because they are meant to be complementary to the
lamp sales. The molds are specifically for lamps; the bulbs are also installed
in some lamps or sold as replacement parts.
The company has investments in associate and J.V companies
in Laos, Vietnam, Indonesia, Pakistan, India and Thailand. 85-90% of sales are
from head and rear lamps, particularly motorcycle lamps.
For each automobile or motorcycle model, each OEM or
manufacturer may tender for a certain part. For example, Thai Stanley may be
responsible for the head lamps and signal lamps, while competitor Koito may be
responsible for the rear lamps. The breakdown for Thai Stanley’s lamp
production is approximately 5% fog lamp, R/C 40%, head lamp 55%.
|
Thai Stanley Lamp Product Type Breakdown
|
|
|
Head Lamp
|
55%
|
|
R/C
|
40%
|
|
Fog Lamp
|
5%
|
Thai Stanley’s product mix is 60% halogen lamps and 40%
LEDs. LEDs command a 50% higher average sales price, but are slowly dropping as
more competitors introduce lower priced LEDs to car manufacturers. Most
rear/tail lamps you see in cars nowadays still use halogen lamps while most
head lamps have been replaced by LEDs.
Thai Stanley derives 70% of its sales domestically and 30%
of its sales from exports. Currently, 15% of Thai Stanley’s export business is
direct to Indonesia, Vietnam, Japan, India, Pakistan, Australia and Europe.
Another 40% is indirect export in which Thai Stanley supplies parts for
companies which manufacture vehicles for exporting.
Thai Domestic Automobile Market
In Thailand, for the automobile lighting/lamp industry, in
terms of size— there are only 3 local
players, Ichikoh (owned by Valeo), Koito, and Thai Stanley Electric.
Ichikoh is weak with
6-7% market share in the Thai market, as they focus more in Malaysia,
Indonesia, and WuXi (province in China). Koito has a 52% market share in
Thailand. Thai Stanley has 42% market share of automobile lighting.
Further insight is obtained if we break automobile market
share down into motorcycle vs car lamps—Thai Stanley is the leader in
motorcycle lamps with 80% or more of the local market share. Koito, Thai
Stanley’s competitor, has more than 70% of car lamps by market share.
2019 Market Share and
Sales of Automobile manufacturers in Thailand
Data: Capital IQ &
Dunn and Bradstreet
For motorcycle lighting/lamps, Thai Stanley is the dominant
player in Thailand with 85-90% market share and has ties to Honda via Japan’s
Stanley Electric. For car lamps they are weaker and hold 8-15% market share in
Thailand.
Koito Manufacturing, a Japanese company with ties to Toyota,
controls 70-85% of domestic (Thailand) car lamp sales and 8-9% of the motorcycle
market. They have 25% of the global automobile lighting market share.
Ichikoh, a smaller competitor in Thailand, but bigger than
Thai Stanley on a global market, has 2-3% of the Thailand automobile lighting
market.
Analysis of local lighting competitors- ASP and units
The average sales price for lighting/lamps for cars is 2-3x
higher than motorcycles (Including Head Lamp, Rear Lamp, and Tail Lamps).
Koito, Ichikoh, and Thai Stanley ( 30% and above owned by
Japanese Stanley Electric) takes advantage of the low tax regimes of the ASEAN
Free Trade Area (AFTA) and the Japan-Thailand Economic Partnership Agreement
(JTEPA). Japanese companies use Thailand as a base to produce motorcycle
lighting parts which are distributed to other regions such as Vietnam, Indonesia,
etc for assembly.
2019 Automobile
Market – Koito, Thai Stanley, Ichikoh –ASP, Domestic revenue, car/motorcycle
|
Thai Stanley
|
Units
|
ASP (USD)
|
Domestic Revenue (USD)
|
Unit Vol %
|
|
Car Units
|
84,850
|
566
|
47,982,675
|
5%
|
|
Motorcycle Units
|
1,554,150
|
195
|
303,059,250
|
95%
|
|
Total units
|
1,639,000
|
380
|
351,041,925
|
|
|
Koito
|
Units
|
ASP (USD)
|
Domestic Revenue (USD)
|
Unit Vol %
|
|
Car Units
|
916,400
|
566
|
518,224,200
|
90%
|
|
Motorcycle Units
|
105,600
|
195
|
20,592,000
|
10%
|
|
Total units
|
1,022,000
|
380
|
538,816,200
|
|
|
Ichikoh
|
Units
|
ASP (USD)
|
Domestic Revenue (USD)
|
Unit Vol %
|
|
Car Units
|
70,600
|
516
|
36,443,720
|
56%
|
|
Motorcycle Units
|
56,400
|
178
|
10,039,200
|
44%
|
|
Total units
|
127,000
|
366
|
46,482,920
|
|
It can be seen Koito and Thai
Stanley share similar ASPs. Ichikoh is relatively new to the market and it has
very low operating margins with low ASP & volume. Car lamps have a higher
ASP than motorcycle lamps.
Annual automobile units produced
in Thailand 2018
|
Total Motorcycle Units
|
1,716,150
|
|
|
Total Car Units
|
|
1,071,850
|
|
Total Automobile Units
|
2,788,000
|
|
2019 Automobile
lighting/lamp Market Share in Thailand
|
Thailand Domestic Market Share
|
Thai Stanley
|
Koito
|
Ichikoh
|
|
|
Motorcycle
|
|
91%
|
6%
|
3%
|
|
Car
|
|
8%
|
85%
|
7%
|
While Thai Stanley Electric has become a dominant local
(Thai) motorcycle lamp manufacturer (80-85% market share); in terms of total sales
and market share it is ranked 2nd locally (Thailand) and 5th
– 6th globally. Locally (Thailand) and globally, Koito is number 1
in terms of market share. Koito has closer connections to Toyota, while Thai
Stanley has connections with Honda and Yamaha.
After verifying with IR of Thai Stanley, Ms. Rattanaporn has
confirmed that lamp production is
divided between LEDs at 40% and halogen at 60%. For both cars and motorcycles,
tail lamps still use a lot of halogen bulbs to save up on costs. The ASP for LEDs is about 50% higher than
Halogen lamps. LEDs are being produced more efficiently and there are more
competitors leading the ASP to slowly drop every year.
Thai Stanley’s ASP
for LEDs & Halogen lamps
(Author’s estimates)
|
Thai Stanley Car ASP for Halogen & LEDs
|
|||
|
Car
|
Units
|
ASP (USD)
|
Unit Vol (%)
|
|
Halogen
|
50,910
|
453
|
60%
|
|
LED
|
33,940
|
680
|
40%
|
|
Total
|
84,850
|
566
|
|
|
Thai Stanley Motorcycle ASP for Halogen & LEDs
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Motorcycle
|
Units
|
ASP (USD)
|
Unit Vol (%)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Halogen
|
932,490
|
156
|
60%
|
|||||||||||||||||||||||||||||||||||||||||||
|
LED
|
621,660
|
234
|
40%
|
|||||||||||||||||||||||||||||||||||||||||||
|
Total
|
1,554,150
|
195
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
2019 Koito Car and
Motorcycle ASP for Halogen and LED Lamps
Koito produced approximately 1M lamp units for cars and
1.05k units for motorcycles. Koito has an ASP of USD$234 for LED lamps and
USD$156 for halogen lamps for cars. LED lamps have an ASP which is 50% higher
than halogen.
|
||||||||||||||||||||||||||||||||||||||||||||||
Motorcycle industry, brands & factories in Thailand
According to Krungsri research the total production capacity
for motorcycles then was approximately 2.19 million units per year. Domestic
units were 1.79 million, export units were 370,000.
In 2018, Thailand was home to 12 motorcycle factories, which
produced approximately 1.7 million units of motorcycle vehicles under 14
different brand names
The big four Japanese motorcycle brands are
(All 4 brands comprise of Thai Stanley’s
biggest customers)
Honda (1,700,000 units),
Yamaha (600,000 units),
Suzuki (550,000 units),
Kawasaki (260,000 units).
Combined together, they contribute to 87% of Thailand’s
motorcycle production capacity.
Other producers which target the smaller CC motorcycle
market include—
SYM (Taiwanese), Ryuka
(Chinese, 20,000 units), GPX (Thai, 40,000 units)
Bigger bike manufacturers include—
Benelli (Italian),
Keeway (Chinese), Triumph (British, 120,000 units), BMW (German, 10,000 units),
and Ducati (Italian, 20,000 units). Together, SYM, Keeway, and Benelli make up
60,000 units.
Looking at the full 2018 year figures, in terms of
motorcycle market share— the leader was Japanese Honda with a huge market share
of 78% by volume of all motorcycles (the
second largest in the World) having sold near 1.4 million units last year, down
1.6% from the previous year. In second place is Yamaha, with 14.8% share, ahead
of GPX and Suzuki.
Honda sold around
20.2 million motorcycles worldwide in the 2019 fiscal year. Only 1.7M units
were sold in Thailand, yet this is enough to dominate 78% of Thai’s motorcycle
market share. The big 4 brands are really important to Thai Stanley. The other
brands outside of the big 4 combined only comprise 1/12 of Honda’s sales.
The Premium brands segment is growing and several new
manufacturers entered the market in recent years, but while BMW (+17.2%) outperformed
with a 2018 new record, others are struggling— Ducati overall was down 16.1%
last year, which is third year of losses in a row— selling less than one/third
of 2015, despite the local plant production.
Currently, both Vietnam and Indonesia both have production
capacities bigger than Thailand. Thailand use to import “completely built
units/ finished cars & motorcycles”, but now ships them “completely knocked
down/ automobile parts” such as exhausts, engines, lighting to be assembled in
Vietnam or Indonesia.
Thai Stanley
sends/sells a USD 410M worth of parts to Laos and USD 300M worth of parts to
Indonesia for final assembly. Since Thai Stanley sends parts and imports
materials from other East Asian countries, they have bought shares into Laos
Stanley and Vietnam Stanley and enjoy a profit share.
Most of Honda and
Yamaha’s models manufactured by Thai Stanley are under 250cc. Exports sales
revenue has grown from 1.5B baht in 2011 to 4.29B baht in 2019.
Following the definitions of The United Nations Economic
Commission for Europe (UNECE), the output of the Thai motorcycle sector may be
split into two basic categories. These are mopeds and sports motorcycles.
Thailand’s predominant motorcycle have engines which are 110-125cc and made for
the average farmer/pedestrian/laborer. These bikes/motorcycles are commonly
known as mopeds. Moped includes the small family-motorcycles with automatic or
semi-automatic gears. In fact, in 2019, more than 80% of domestic production is
of this category. The remaining fraction of production is then of big sports
motorcycles with engines over 248 cc, (including big bikes).
The purchasing power and level of income of farmers and
manual laborers determine the demand of motorcycles, which in turn affects the
sales of motorcycle lighting of Thai Stanley. Despite a minimum wage increase
of 300 Thai baht a day, should the price or the harvest of agrarian goods
(sugar cane, rubber) be affected, spending power of farmers will be severely
impacted.
Mopeds are usually
purchased by laborers with high levels of debt. Therefore, factors such as the
economy, increasing wages, ease of lending and access to credit is extremely
important to Thai Stanley. Local loan companies such as NTL, Sawad, Muang Thai
Leasing (MTL), all provide various forms of financing for automobiles whether
through leasing, hire-purchase sales, or payments with collateral. Should
interest rates rise, there is a chance of debt defaults from customers. If
lenders or the government tighten access to credit for small loans, growth in
the domestic market will be hampered.
As you can see from the chart above,
most of the new motorcycle registrations come from the farms and suburbs of
Thailand which are predominantly where laborers and farmers live.
Bigger sports motorcycles (motorcycles over 250cc) and more
expensive European motorcycles such as BMW, Triumph, etc. typically have
customers with higher purchasing power. While this sector may be smaller
domestically, it will still see an increase in turnover. Normally, these bikes
are imported instead of produced domestically, but this trend is changing with
European producers coming into Thailand. As the main customers for big bikes
(over 250cc) are higher income individuals, sales don’t tend to fluctuate as
much.
Saturation of Motorcycle Market & Dependence on a few
major brands
While Thai Stanley is the dominant player for domestic
lighting for motorcycles, Thailand's motorcycle market shows signs of
saturation. The motorcycle market in Thailand is dominated by Japanese players
such as Honda, Yamaha, Kawasaki, and Isuzu. According to data from Thailand’s
Land Transport Department, the country’s motorcycle market declined from
755,214 units sold over the first five months of 2018, a drop of 2.4 percent
from 773,794 units sold over the same period in the previous year.
As in the recent past, Japanese automotive giant Honda
dominated the Thai motorcycle market in the first five months of 2017, selling
584,769 units. However, the figure was a drop by 3.68 percent from 607,128
units sold over the same period in the previous year. Closest rival Yamaha,
however, managed to register a growth of 3.2 percent from 113,477 units sold
during January-May 2017 to 117,109 units sold between January and May this
year.
On the other hand, the sales of another Japanese automotive
major, Suzuki fell by 14.83 percent with only 8,516 units sold in the first
five months of 2018 compared to 9,999 units sold over the same period last
year. Kawasaki, another important Japanese player, however, registered a 3.72
percent growth selling 8,151 units in January-May 2018 as against 7,859 units
sold over the same period in 2017.
Thai Stanley has too
much of their sales reliant on Honda and Yamaha. Honda comprises of 45% of Thai
Stanley’s revenue at 6.77B baht, while Yamaha comprises of 25% at 4.26B baht,
while other brands (Mitsubishi, Suzuki, Mazda, etc) comprise of 26% at 3.86B. A
drop demand from these big 4 Japanese motorcycle manufacturers will adversely
affect Thai Stanley in production and sales as they comprise of more than 70%
of Thai Stanley’s total sales.
Export and Local
Sales / Sales from Honda & Yamaha for Thai Stanley 2015-2019
Source: Annual Report & Capital IQ
Thai Stanley is too reliant on sales from Honda and Yamaha.
Honda, in 2019, has a debt to equity of 84% and its cash conversion cycle has
lengthened from 30 days in 2016 to 90 days in 2019, Honda’s EBIT was 4.7%. Yamaha’s
cash conversion cycle was 120 days in 2019, its debt to equity was 47%,
Yamaha’s EBIT was 7.6%. These 2 companies comprise of approximately 75% of Thai
Stanley’s sales. Compare this with a Chinese car company Geely, which has a
debt to equity of of 7.4% and a cash conversion cycle of less than 10 days in
2019.
Japan listed Stanley Electric, at a market capitalization of
near USD 4 billion and with sales of 4 billion dollars is 10 times bigger than
Thai Stanley. Since Thai Stanley is 36% owned by Stanley Electric, there is always the worry that certain customers and countries are
off limits due to non-competitive agreements or repeat customers. International
expansion for Thai Stanley may either hindered or supported by Stanley
Electric, depending on the agreement they have. One thing is for sure— Stanley
Electric provides Thai Stanley with R&D and a huge network, and Thai
Stanley purchases a considerable amount from Stanley Electric and Asian Stanley
(also owned by Stanley Electric).
(See Distribution section for more
details)
Thai Stanley had sales of 14.6B baht (USD 450M) in 2019,
March 31, with 30% of sales 4.2B Baht
(USD 130M) from exports, and 70% of
the sales 10.3B baht (USD 320M) being domestic. In this regard, Koito’s
sales are 50% domestic, and 50% exports.
Most of manufacturing for domestic consumption is geared
towards laborers and farmers with smaller bikes having an engine capacity of
lower than 200cc. Since farmers are the dominant purchasers for domestic
products, a season of drought or bad harvest will affect local sales. This is
changing, as there is a growing middle class with more disposable income which
may have a preference for bigger motorcycles.
The Thai motorcycle sector focuses on producing for the
domestic market which takes over 80% of all output by volume. While this trend
may change, this in effect makes the annual sales of Thai Stanley somewhat
volatile, as it can be influenced by macro-economic factors such as domestic
political uncertainties, a change in policies, or a dip in the local economy.
Near 2011, Thailand experienced some major floods that was damaging to both
producers and consumers.
Regarding exports, in less than a decade, Thailand has gone
from a marginal producer of "big bikes" -- loosely defined as
motorcycles over 400cc or 500cc -- to a leading exporter, mirroring the
country's success as an auto manufacturing hub. Nearly all major brands now
assemble in the country. Even Harley-Davidson, which has long touted its
"Made in America" image, announced plans earlier this year to open a
plant in Thailand.
Worldwide sales of big bikes total at least $10 billion a
year. Entry-level models generally cost under $6,000 before tax, several times
the price of an average scooter, while high-end sports bikes and cruisers can
exceed $30,000. Worldwide, about 1 million motorcycles over 500cc were sold
last year.
Approximately 115,000 motorbikes 400cc and larger were
assembled in Thailand in 2016, and roughly 90,000 were exported. This year,
production is on track to reach 176,000 and exports 133,000 (see chart).
Thailand now accounts for about 15% of global big bike
manufacturing— output worth well over $1 billion. Triumph was the first
manufacturer to make Thailand a key export base, launching full assembly in
2007. It produced more than 40,000 bikes in the country last year, about 80% of
its global sales volume. Honda has relocated assembly for most of its
under-700cc motorbikes from Japan to Thailand, where it produces 16 models for
global export. Ducati's latest plant expansion doubled capacity to 20,000 units
a year.
Major brands continue to introduce new Thailand-produced
models. In November Ducati said its new flagship bike, the Panigale V4
"superbike," would be assembled in Rayong for delivery to Asian
markets.
Thai Motor Cycle Export Data
For most motorcycle
manufacturers in Thailand, most of their sales comprise of domestic sales
rather than exports. For exports, completely built up units are the majority,
which make up USD 1.35B of sales, while un-assembled, completely knocked down
units comprise of USD 130M. Asean countries made up the bulk of exports.
Thai Stanley has 3
important policies an investor should take note of—
- Each year the company will invest not less than 800 million baht (USD 25M) on dies, molds, machinery & equipment to support development. (Min maintenance CapEx)
- There will be a dividend of 30% or more of profits annually.
- Investment in
subsidiaries cannot exceed 10%
of total assets.
Thai Stanley has a
policy in which investment and capital expenditures for expansion by means of
subsidiaries and associates cannot exceed 10% of total assets. As the
dividend policy is 30% and above of net profits, should there be a year where
Thai Stanley wants to expand aggressively using its internal funds, its
conservative policies and high dividends payments may potentially restrict its
ability to capture additional opportunities. Working capital is 5.8B baht (USD
180M), with cash comprising of 1B baht (USD35M). Thai Stanley has a minimum
investment threshold of 800 million baht
(USD25M) each year as mentioned in its policies for dies & mold, machinery,
and new equipment to support product development.
To be conservative, we believe the minimum maintenance capital
expenditure is at least 3.2B baht, or at least USD 100M to maintain minimal
growth and stay competitive.
While it is company policy that investment in subsidiaries
cannot exceed 10% of total assets; each year, about 40% of all capital
expenditures are investments in subsidiaries. Thai Stanley expands business
through its subsidiaries to operate as an integrated business—with separate
plants for Research & Development Center, etc.
Japan listed Stanley Electric Holding Structure
From the chart above, we can see that Japan’s Stanley
Electric (Tokyo stock exchange 445.74B (USD 4.1B)) owns 35% of Thai Stanley
Electric. Sittipol (Lee-Issaranukul
family) owns 29% and local company and other entities own 41% of Thai Stanley.
Thai Stanley owns 15% of Asian Stanley International, 20% of
Vietnam Stanley, 10% of P.T Indonesia Stanley Electric, and 10% of Stanley
Electric Engineering India ltd. Because Japanese listed Stanley Electric owns
shares in Thai Stanley—it shares some of its distribution and procurement
channels, and customers with Thai Stanley.
Japanese listed Stanley Electric owns 100% of Stanley
Electric Holding America, 60% of GuangZhou Stanley Electric, 53% of Chong Qing
Hau-Yu Stanley Lighting, 95.8% of TianJin Stanley Lighting, 35.8% of Lumax, 90%
of Stanley Electric India, 60% P.T Indonesia Stanley Electric, 77.5% of Asia
Stanley International, 50% Vietnam Stanley Electric, 50% Stanley Electric
Hungary, and 90% of Stanley Electric Europe.
Shareholders
Thai Stanley
Shareholders
Japanese Stanley
Electric Shareholders (TYO: 6923)
Japan’s Stanley
Electric owns 33-36% of Thai Stanley
Distribution &
Procurement
As mentioned before, Thai Stanley is a Thai-Japanese joint
venture between Seng Nguan Hong (Sittipol) Company Limited (currently known as
The Sittipol 1919 Company Limited) and Stanley Electric Co., Ltd. of Japan.
Family auto parts company Sittipol was founded by parents of
late husband Vitya in 1919 as a bicycle repair shop in Bangkok. Eldest son,
Thanong, heads group, which includes private companies and listed Inuoe Rubber
and Thai Stanley Electric. Sittipol is investing $60 million in eco-friendly
car accessories.
Thai Stanley has 3 products - Automotive bulb , Lighting
Equipment Lamp , and Die & Molds. The main product is the Lighting
Equipment Lamp which accounts for 95% of total sales. ( Bulb is about 4% and Mold is about 1% of
total sales). Dies & Mould plant,
bulb plant and lamp plants enter into a joint investment agreements to establish new companies in
other countries such as Laos, Vietnam , Indonesia and India, which provides technical support and
supply of electronics and raw materials. Thai Stanley imports USD 504M from
Vietnam parts from Yamaha bikes Exciter, R15, R3, MT-03, Nmax, and Spark for
assembly in Thailand.
Management from Thai Stanley claims that none of the top 3
companies has a significant advantage in production potential (Ichikoh, Thai
Stanley, Koito) in Thailand. Thai Stanley benefits from an advantage of Stanley
Electric’s R&D team and new capacity for more production to support every car
maker in Thailand. Thai Stanley now has 5-6
Lamp factories with 2 more under construction and reaching full
utilization soon.
Manufacturing–Thai Stanley has three divisions of
manufacturing plants as follows:
1. Light bulb plant- these are halogen bulbs in which 30%
will be sold to automobile parts dealer Sittipol and 70% to OEMs for Lamp
production Thai Stanley has a factory for Bulb production, which produces
models such as T19 , S25 , G18.
2. Lamp plant- These orders will go directly to OEMs
3. Die and mold plant- These molds specifically made for
bulbs. All molds are for automotive lamp parts.
Local Channels
OEM market: these products are sold directly to local
assembly plants in Thailand. Thai Stanley electric claims not to publish any
retail catalogs or distribute directly online. Currently the production mix is
60% halogen and 40% LED.
Replacement equipment market: These products are sold
through Thai Stanley’s dealer, The Sittipol 1919, Co., Ltd. Sittipol is Thai
Stanley’s dealer in spare parts for motorcycles and cars, and the company
hasn’t paid any other compensation to other dealers. (pg. 71 of 2018 annual
report) 30% of halogen bulbs are here.
International
Channels
OEM market: These products are sold to assembly
plants abroad.
Inter-member market: These products are exported to
each international member of Stanley Group
Thai Stanley has its own production facility in Thailand for
Halogen bulbs. These halogen bulbs will then be separated— 70% will be sent to
lamp factory for production which will be then sent to OEM factories to be
assembled for specific car brands. The
remaining 30% will be for sale to local dealer by agent, Sittipol group.
While the ASP for LEDs are 50% higher than halogen bulbs,
LEDs will get cheaper in the long term. Thai Stanley is currently 60% halogen
and 40% LED. The transition for the halogen bulb plant into an LED plant is a
crucial factor, as LED lamps are increasing in demand. As it transfers to LED
lamps, it will get a boost in revenue.
Since halogen bulbs are locally produced, LED lamps are purchased from
Asian Stanley which is majority owned by Stanley group.
Regarding LEDs, management has confirmed
purchase from Asian Stanley (68% owned by Stanley Group), which is near the main plant. Stanley
Electric also produces all types of automotive lighting electronic components,
automotive interior displays, and sensors. From 2013 onward, Stanley Electric
began to concentrate more on the development of LED headlights and plans to
raise the LED share from 5% to 25% by 2019.
The Die & Mold products are sent to Lamp factory for finalized
production of lamp products (all mold are for automotive lamp part) which are
sent directly to the car maker ( such as Honda ,Toyota , Mitsubishi etc.. ) inThailand and are not sold directly for
retail.
The main product / lamp , now we are top 3 of automotive
lighting manufactures in Thailand ( Thai Stanley , Koito , Ichikoh ) , examples
of new models/ product now are— Head lamp of Honda Accord , Head lamp and Rear
combination lamp of Mitsubishi Pajero Sport, etc.
Distribution in the automotive lighting industry is bolstered
by partnerships. Stanley Electric has 36 consolidated subsidiaries, 3
associated companies, 28 factories in eight countries, offices in 17 countries
and over 16,000 employees.
The majority of materials are supplied by Stanley Electric
Co.,Ltd. of Japan and other company members in the Stanley Group for the
following reasons (as explained by Stanley’s Annual Report):
1.The material has characteristic features and can be
acquired in large quantities from a single source to save costs. Conversely, it is not cost-effective for the
Company itself to manufacture the material in Thailand because of the low
demand.
2.A large order is necessary for cost-effectiveness. However, local demand is not large
enough. In other words, a small order
increases the cost. The Company has therefore opted to buy only essential
material locally out of the total quantities obtained from Stanley Electric
Co., Ltd. of Japan. This is to reduce
the cost of procurement and the risk of dead stock.
3.A single source provides the material on the basis of the
alliance among the members of the Stanley Group, resulting in economies of
scale. The material is distributed to
all other members worldwide.
4.The price of material provided by Stanley Electric Co.,
Ltd. of Japan and the Stanley Group is fixed at a reasonable and favorable
level. The pricing formula is the actual
cost plus administrative expenses. If
some kinds of general material can be acquired from other suppliers on favorable
conditions, the Company has absolute discretion to proceed with that
procurement without abiding by any commitments within the Stanley Group.
(The table above does
not provide the full amount of total purchases between Thai Stanley and Japan’s
Stanley Electric)
Since Japan listed Stanley Electric owns 67% of Asian
Stanley, if we group the 2 together, in 2019 Thai Stanley purchased 713 million
baht (USD 22 million) from Stanley Electric and 1914.7 million baht or (USD59.8
million) from Asia Stanley, which totals to 2.6B Baht or USD 82M purchased.
COGS for 2019 was 11.8B baht (USD368M) or 22% of all COGS comes from the
purchases from Stanley Electric and their subsidiary Asian Stanley
International.
Thai Stanley purchases raw materials and electronics from
Stanley Electric, Sirivit Stanley, and Asia Stanley. As mentioned before, in
terms of market cap and sales, Stanley Electric is 10x bigger than Thai
Stanley.
In order to support Honda's operations outside Japan,
Stanley Electric established its first U.S. subsidiary in 1979, starting its
operations in North America. In April 2015, the company set up a manufacturing
subsidiary in Jalisco, Mexico. This plant kicked off in the summer of 2016.
In Europe, Stanley Electric formed a manufacturing joint
venture in Hungary in 2001 with Hella of Germany.
In China, Stanley Electric established its first joint
venture in Tianjin in 1995. It later added three more production plants in
Guangzhou, Wuhan, and Chongqing. In June 2015, it set up a development center
in Tianjin.
In India, Stanley Electric has been operating its business
through a local major supplier, Lumax Industries, in which Stanley Electric has
a 35.8% stake.
Stanley Electric has also formed a joint venture with the
German group Hella in 2002, with the
holding "HELLA Stanley Ltd Pty" which is located in Melbourne.
Chongqing Huayu Electric Instrument Group Co. Ltd.
manufactures and distributes electrical equipment. The Company produces heat
pump water heaters, water chilling units, air conditions, and other equipment.
Chongqing Huayu Electric Instrument Group also produces oxygen respirators,
special machinery, precision instruments, and other equipment.
Lumax Industries is a market leader in automotive lighting
industry in India with over 60 per cent market share. Lumax Industries Limited
of India (2019 sales of 18.51 billion Indian Rupees [US$260.13 million] of
which 100% was Auto components). Lumax serves Stanley Electric in both
distribution and procurement.
Other Associations
besides Stanley Electric
Thai Stanley has associated companies in Laos and Vietnam,
and Sittipol helps distribute its auto-parts to locals car mechanics. Thai
Stanley’s advantage of global networks, R&D, and purchasing power all comes
from Stanley Electric and Asia Stanley (78% Stanley Electric owned and 15% Thai
Stanley owned).
Thai Stanley –
Purchases in equipment and raw material, and sold goods via subsidiaries
Future investments in subsidiaries and
associates are capped at 10% of total assets.
Thai Stanley currently acquires 66-80% of its materials from
local suppliers and 20%-34% from offshore suppliers. Fortunately, their price has not changed
significantly over the years.
70% of raw materials
for Thai Stanley are purchased from local suppliers. The other 30%, which are
imported materials, are purchased from Stanley Group.
Thai Stanley’s primary raw material is plastic resin; for
example, Poly Carbonate (PC), Bulk Molding Compound (BMC), Poly Propylene (PP),
Acrylonitrile Butadiene Styrene (ABS). Most electronics, transmitters, sockets,
electric wires are purchased from Sirivit Stanley—a subsidiary of the Japanese
listed Stanley Electric. Advanced electronics and R&D is supported by
Stanley Electric which owns 33% of Thai Stanley.
In terms of goods sold, Thai Stanley sold 409 million baht
or USD 12 million to Laos Stanley. Thai Stanley has only sold 22.55 million
baht or USD 0.7 million from Vietnam Stanley. Thai Stanley, however, purchases
504 million baht or USD 15 million worth of goods.
From Sirivit Stanley, Thai Stanley purchases 376.68 million
Baht or USD11 million baht. From P.T Indonesia Stanley 299.7million baht or
USD9.3 million sold. After talking to IR, we found that these purchases were
related to ' socket - the electric wire sets’ for lamps.
Thai Stanley owns 20% of Vietnam Stanley and 50% of Laos
Stanley. In 2019, this results in a profit share of USD 268,226 from Laos
Stanley Co. and USD 9,612,384.
Sittipol
distribution Channel
For halogen bulbs, an
email with IR claims that 70-85% of the bulbs are sold directly to automobile
brands, while 25-30% are sold directly to local dealer/agent Sittipol, which is
a replacement parts seller and a major shareholder of Thai Stanley. The average sales price direct to OEM is 10%
higher than replacement parts sold to Sittipol group.
.
|
OEM parts vs. Repair
parts (Sittipol)
|
Units
|
ASP
|
|
|
Halogen Direct to OEM
|
717,882
|
156
|
|
|
Halogen Repairs &
Parts total (Sittipol)
|
265,518
|
140
|
|
|
Halogen Lamp total
|
983,400
|
|
|
|
OEM parts vs. Repair
parts (Sittipol)
|
Units
|
ASP
|
|
|
LED Direct to OEM
|
478,588
|
234
|
|
|
LED Repairs & Parts total (Sittipol)
|
177,012
|
211
|
|
|
LED Lamps total
|
|
655,600
|
|
Thai Stanley Product Strengths (Directly taken from Marklines and
Stanley Electric’s Website)
Automotive lamps can be separated into 7 categories with
varying ASPs:
1. LED headlamps
2. HID headlamps
3. Rear combination lamps
4. High mount stop lamps
5. Fog lamps
6. Automotive light bulbs
7. LED light bulbs
Automotive lighting includes headlights, tail lights and
turn signals and the like. At the same time, automotive lighting types can be
divided into halogen lamp, LED, HID.
The focus of parts makers in the auto industry is shifting
to safety and autonomous driving. Self-driving vehicles can provide growth for
manufacturers by providing new lights that warn others of the presence of another
car.
Thai Stanley benefits greatly from the modern technology and
valuable experience transferred from its joint venture partner, Stanley
Electric Co., Ltd. of Japan. Stanley Electric intends to boost global sales of
LED headlights to account for 20% of its overall sales tally by 2017, up from
around 1% currently (report from Nikkei). The company recently began
mass-producing high-end and low-cost models and now offers three types of LED
headlights, including the standard variety. It aims to make a full switch to
LED headlights from HID (high-intensity discharge) versions. The company plans
to market the low-cost LED headlights overseas, including China.
Thai Stanley is trying to develop a next-generation lamp
system through the R&D efforts of Stanley Electric. Stanley Electric spends
USD 50-80 million a year on R&D. The lamp system will check GPS data
against map data to determine vehicle positions and automatically emit light
when approaching locations with low visibility intersections. It will signal
the approaching vehicles and surrounding pedestrians to prevent accidents.
Stanley Electric expects to commercialize this by 2020.
Japanese listed
Stanley Electric has a licensing-in agreement with Germany company OSRAM GmbH
which grants a patent on White LED. White LEDs have to do with optical
electronics electronics—these are high-output white LED and high-output
red/infrared LED with the development of high speed image sensors to replace
halogen lamps.
Previously, Stanley Electric worked with Nichia Corporation
on White LEDs, but the validity period of the patent ended.
Regarding the
Licensing-out agreement on auto-mobile lamps— there is an agreement with
Japan’s Stanley Electric with Thai Stanley Electric Public Co., ltd which lasts
from April 1, 2018 until March 31, 2021.
Other notable licensing-out agreements include SL Lighting
Corporation (Korea) on automotive lamps which last from April 1, 2017-March 31,
2022.
Another licensing agreement includes Lumax Industries Ltd.
(India) which is also for automotive lamps which lasts from April 1, 2018 –
March 31, 2019
As part of the Company's production innovation activities,
its Okazaki Factory in aichi Pref., producing automotive lamps, was
restructured and a new plant building is being built at Asian Stanley International
Co., Ltd., in Thailand, producing electronic components.
Stanley has 5 R&D centers in Japan, where new light
sources are explored, present light sources are optimized and new products are
developed. One of those centers is located in the city of Tsukuba. Besides
that, picoprojectors with MEMS and biotechnology are explored. Research results
are regularly published in scientific journals. Stanley's products include
standard headlights (HID) as well as LED headlights. Stanley developed the
world's first LED high-mount stop lamp.
Competitor Koito will put tail lamps using organic ELs
(OLED) to practical use between 2017 and 2018. Koito intends to meet
automakers' needs to improve vehicle design by replacing LED commonly used in
tail lamps with surface-emitting OLEDs. In its next-generation luminous source
development, Koito has been engaged in applying lasers to headlamps. Koito will
advance the development of OLEDs as one of next-generation light sources and is
working toward practical use of stop lamps and blinkers using OLEDs by 2020,
which are required to have higher luminance than tail lamps.
Stanley Electric’s R&D
Activities (from Markline’s website)
-The Company, through its R&D Center, Production
Technology Center, and Design Technology Center, is working to sustain and
improve lighting technology to make it the highest level in the world, working
under the concept of the "five lights", i.e., creating light,
detecting/sensing light, freely mastering information on light, making use of
light energy, and directing light.
1) Optoelectronics area
-High power white LEDs
-High power red/infrared LEDs -High
speed sensitive image sensors
2) Display area
-Super-high contrast LCDs
-Optical micro-scanners -Display
drive circuits
3) Source of light
and illumination area
-Automotive lamps -LED
street lightings and indoor lightings -Lighting
power circuits and power sources
4) Software area
-Distribution light simulation systems -Optical device optimal design tools
5) Materials and
processing area
6) Styling and design
of all products
7) Products utilizing
above devices and technology
Conclusion/Risks
Thai Stanley is dominant locally regarding motorcycles with
the top 4 Japanese manufacturers as clients—Honda, Yamaha, Suzuki, Kawasaki.
They have captured 80-90% of the local market share of motorcycles, and 70% of
their total sales are domestic. There is a ceiling to further expansion unless
exports increase— Thailand has a population of 70 million and over 1.3 million
motorcycle units are produced each year. While greater than 80% of households
have scooters or motorcycles in Thailand, this trend may decrease as the
population becomes more prosperous. The seven major motorcycle manufacturers all
have local production in Thailand, which is a clear advantage in the domestic
market, but they have to fight against an aggressive group of local brands and
new Chinese brands. Most electric scooters in Thailand are imported from China.
This is the same for motorcycles with a bigger engine/ cc.
GDP and domestic and international growth of automobile
lighting industry
We conservatively assume that the automotive lighting
industry will not maintain the same growth as before, since GDP and consumption
is slowing down in many countries. Thailand’s GDP growth rate forecast, as
listed in Stanley’s annual report, is 4% in 2019. Yet this could worsen, and
realistically, 3.4-3.8% is possible. Domestic sales of automobiles in 2018
totaled 1,040,000 cars. A 19.5% increase from the previous year. The production
rate was 2,168,000 cars, which increased 9% from the previous year.
For motorcycles, 1,788,000 units were sold domestically;
about 2,063,000 were manufactured in 2018. For motorcycles the FTI forecast
from Stanley’s annual report assumes 2,140,000 motorcycles manufactured; in
which 1,780,000 units will be produced for domestic sales and 360,000 units
destined for export.
The annual growth rate for the entire automotive lighting
industry is 2-4% in a pessimistic scenario with a global meltdown.
On the other hand, commercial vehicles in the market are
witnessing steady growth due to a high demand for enhanced lighting products
increasing consumption of lighting products. An optimistic scenario would be
5-7% from 2018 to 2025. Thai Stanley has ramped up its capital expenditure and
has expanded new factories overseas into markets like Vietnam, Laos, etc.
The automotive lighting industry has shifted from
traditional halogen to LED (light emitting diode) lamps. This should directly
benefit Thai Stanley Electric, as it should win more orders from motorcycle
manufacturers. The LED lamp market is still in a growth phase, while other car
or motorcycle manufacturers are anticipated to continue their shift towards LED
technology. This should give the company greater bargaining power against its
customers as well – it should be able to demand higher selling prices, being an
expert in the manufacturing of LED lamps.
It is entirely possible that a technological innovation in
lamps or LEDs reduces costs but that the cost reductions will benefit the
customer instead of the business and shareholders.
Thai Stanley’s main customers are now indirectly agrarian
laborers/farmers, since they are purchasers of motorcycles. 80% of motorcycles
in Thailand are smaller, cheaper, 100-125cc motorcycles. Should there be a
drought, poor harvest, or tightening of credit/leasing companies, Thai Stanley
will be adversely affected. Too much of Thai Stanley’s sales are concentrated
with 2 suppliers, Yamaha and Honda. They take up over 50% of sales. Should Yamaha
or Honda go broke or have unforeseen events that affect sales, this will be
detrimental to Thai Stanley.
Thai Stanley also may be limited in terms of expansion due
to control from Stanley Electric. While Stanley may supply LED equipment and
R&D, they have say as to whether new foreign brands get into Stanley’s customer
list.
While the market is valuing Thai Stanley at USD 450-500
million dollars, if we assume little to no growth, owner’s earnings are about
USD 80-120 million, multiples are 6-7x, excluding cash, 4-5x. The company is
definitely selling for a discount, but I do not see a sustainable competitive
advantage with Thai Stanley, and I believe this is a cigar butt situation. Should the company be valued at 1-1.3billion,
if earnings have not increased to USD 250-300million after capital expenditures
are spent on increased production capacity, it is time to sell. Thai Stanly is
generous in offering a dividend of over 30% of profits, and this is another
factor to take into consideration.
Accounts Receivable remains the same at USD 60-70 million
from May 2018 to June 2019. Sales have grown slightly from 410million to
459million. However Inventories in this same period has doubled from USD 20
million to 40 million.
In terms of the size of the automobile lighting industry,
assuming the total in 2016 is around 27-30B, by 2020-2021, it will be 40-45B.
To keep things simple, let’s assume the total global market share of automobile
lighting to be USD 35B; it would be generous to consider Thailand as 5% of the
entire auto-lighting market, which would be USD 2B. Thai Stanley Electric revealed that it is
expecting 16.30% sales growth or at THB 11.65 billion and profit at THB 1.48
billion in FY2018 (April 2017 – March 2018). The factor that contributed to the
growth is the growth of production in automotive industry of 1-3% to 1.95-2
million units from 2016 from the recovery of Thai economy and launch of new
models. However costs of production are
likely to increase from defect products of new models after it had received new
orders for Isuzu Mu-X, Honda CR-V, Honda Scoopy I, and Yamaha QBIX. (From a
Khao Hoon article on July 7, 2017)
As mentioned before, Thai Stanley’s sales in 2018 were 14.5B
Baht. Domestically 10.3B Baht was contributed to total revenue. Exports were
4.2B Baht. Thai Stanley will increase production capacity by 30% after Lamp 7
and Lamp 8 reaches 90% utilization rate. Assume a 25% growth each year in an
optimistic scenario and 5% growth in a pessimistic scenario. What does this
imply?
With 25% growth in sales scenario, in 5 years, domestic sales
should approximately triple to 31B Baht (USD 960M). Exports should triple also
to 10B Baht (USD310M). Total sales would be 41B baht (USD 1.27B). With a 12%
net profit margin, you would receive USD 150M on the fifth year. This seems a bit over reached and unrealistic.
The hypothetical scenario to
breakeven in 5 years with 25% growth—USD65M in year 1, USD 81M in year 2, USD
100M in year 3, USD 125M in year 4, and USD 150M in year 5— this would be a
total of USD 521M. The market cap for Thai Stanley in August 2019 is USD 475-500M.
The 5-7% growth scenario assumes for the worst case, which
is what will probably happen in such a volatile industry such as automobiles.
This would mean that in 5 years, Thai Stanley’s domestic revenues would grow to
approximately 13-15B Baht (USD430M), and exports 5.2B Baht (USD160M). This
would give us total sales close to 20B baht, or USD 620m. With a net profit
margin of 12%, profits would be 2.7B Baht, or USD 85M. Profits in 2019 are
close to 2B baht, which is USD 65M. 5 years later, profits may not exceed USD
100M annually, or 3.2B Baht.
If I paid 15.32B Baht today (USD
500M) for the entire company (Thai Stanley), and received USD 50M in year 1,
USD 65M in year 2, USD 75M in year 3, USD 85M in year 4, and USD 90M in year 5,
the total would be USD 365M. It would take 7-8 years to breakeven.
The 5-7% growth scenario would
leave us with an aggregate return of USD 365M after 5 years, which is inclusive
of bad events happening. The 25% scenario would leave us with USD 520M. If we
bought the whole company in August 2019, it would cost USD 480M-500M.
As of August 2019 Koito
is at a multiple of 10, ex-cash, it would be 7x. Koito seems to be a safer bet
on international car lamps with 25% market share, but warrants further research
before making a conclusion.
LED lighting technologies are witnessing a high popularity
in the automotive industry due to the rising implementation of vehicle lighting
systems. LEDs offer several benefits such as performance & energy
efficiency, bright lights, and low power consumption. Major users of the
LED-based automotive lighting market products are global automotive OEMs
including Audi, BMW, Honda Motor Company, General Motors, Tata Motors, etc.
However, high tariff
and trade restrictions in several countries will hamper the automotive lighting
market growth. These restrictions limit the sales of lighting and other
automotive systems to different countries. In addition, fluctuations in the raw
materials and component prices due to changing supplier conditions will hinder
the product development.
From the chart above, we can see that while sales and income
has improved, accounts receivables has not grown at the same rate. Also,
inventories from 2014-2018 were decreasing, while in 2018, it has grown 32.98%
from the previous year. Working capital in 2018 is a negative 17.45%, which
could not be due a significant decrease in cash. Could this be used in capital
expenditures for further factory expansion? Or is there something really wrong
with the dramatic inventory increase and payables? This warrants further
investigation.
Accuracy of lamp
and bulb production units vs. individual car units
When calculating the relationship amongst bulbs, lamps, and
specific car models, you cannot assume that when you divide X
amount of lamps by 4 or 6 lamps per car to get Y, the number of car models.
It is the same thing for bulbs and lamps, they are not proportional. You cannot say
there are 2 or 3 bulbs for each lamp, they are all different. You will get
units which are skewed when comparing industries.
In the automobile
industry, for example, Toyota or Honda may have a specific model, such as a
Toyota 2019 Camry, and the tail lights might be manufactured by Thai Stanley,
while the head lamps and signal lights might be done by Ichikoh or Koito. You
cannot expect to find how many cars each automobile lighting supplier is
producing for by dividing by a certain fixed value.
Thai Stanley’s sales
breakdown and production units
Source: 2018 Annual Report
The data above is
meaningless—you cannot have an “apples to apples” comparison with
competitors. While halogen bulbs are on a one to one basis, lamps are either
calculated per set, individually, or 4-5 per car or in a different method.
Therefore, this report will not utilize the data above found in the annual
report. Instead, ASP (average sales price) and unit production will be based on
the total output for motorcycle capacity annually in Thailand and on per unit
vehicle. Unit per vehicle allow for apples to
apples comparison without distorting the data.
One thing to note is that Thai Stanley
hasn’t updated the production units per year for the chart above since 2013. Is
this purposely to mislead investors or is this negligence? Either way, it is a
negative aspect.
References:
Thai Stanley Annual Reports and 56-1
Stanley Electric Annual Reports
Krungsri Industry Report on Automobiles and Motorcycles
CapitalIQ
Email and phone conversations with Ms Rattanaporn of Thai
Stanley
Krungsri report on Motorcycle industry in Thailand
No comments:
Post a Comment