EARNINGS RESULTS

3 March 2015 Aapico Hitech AH TB / AH.BK Sector: Automotive Neutral Rating: SELL 4Q14 profit missed estimate Target Price: Bt15.60 Price (2 March 2015): Bt15.10 Price chart

Earnings were 75% below our number BtPrice Rel. to SET Rel. Idx 18 150 AH reported 4Q14 net earnings of Bt31m, down 62% QoQ. The result 16 was 75% below our estimate and the Bloomberg consensus, due 100 14 50 largely to the effects of weaker sales than assumed—only Bt3.46bn 12 (down 11% QoQ); we had modeled for Bt3.7bn. FY14 profit dived 40% 10 0 03/14 04/14 06/14 08/14 10/14 12/14 02/15 YoY to Bt367m, which represents 66% of our earlier FY14 projection. Share price perf. (%) 1M 3M 12M Results highlights Relative to SET 8.7 5.6 (18.1) Sales inched up by 3% YoY and were down 11% QoQ to Bt3.5bn. The Absolute 8.6 4.9 -

QoQ top-line contraction was due to declining orders for export and for Key statistics new models. In contrast, industry-wide 4Q14 auto production was 471k Market cap Bt4.9bn USD0.2bn 12-mth price range Bt12.7/Bt17.5 units, down 11% YoY but up 3.1% QoQ. GM dropped to 3.1% from 12-mth avg daily volume Bt6m USD0.2m 4.4% the previous quarter and 4.7% in 4Q13. Note that AH’s 4Q14 # of shares (m) 323 sales were 10% below our number. Est. free float (%) 44.5 Foreign limit (%) 49.0 Outlook Consensus BLS Target price BLS earnings Looking ahead to 1Q15, a major client, Motors, plans to increase rating vs. Consensus vs. Consensus

exports of pick-up trucks (Isuzu D-Max), enabled by production % Bt Btm BLS Cons. 100 Buy 18.0 800 capacity expansion for the Isuzu D-Max from 200k units per annum to 80 33 17.0 600 60 Hold 400k units/annum. Isuzu’s investment cost for its expansion is about 16.0 400 40 44 Bt6.5bn. However, if the start-up date for this new production capacity 20 15.0 200 22 0 Sell 14.0 0 (mostly for export) were to be delayed, AH’s 1H15 sales would be BLS Cons. 1 BLS Cons. 15E 16E squeezed. Financial summary What’s changed? FY Ended 31 Dec 2013 2014 2015E 2016E We have slashed our earnings forecasts by 23% for FY15 to Bt465m Revenues (Btm) 15,627 14,572 15,301 16,066 Net profit (Btm) 611 367 465 550 and by 15% for FY16 to Bt550 to factor in higher expectations for per- EPS (Bt) 1.89 1.14 1.44 1.70 unit production costs. Note that our GM assumptions have declined EPS grow th (%) -33.7% -39.9% +26.7% +18.1% from 6.1% to 4.5% for this year and from 6.1% to 4.8% for FY16. Core profit (Btm) 337 257 356 441 Core EPS (Bt) 1.05 0.80 1.10 1.36 Recommendation Core EPS grow th (%) -53.5% -23.9% +38.6% +23.8% PER (x) 8.0 13.3 10.5 8.9 Our SELL rating stands, premised on: 1) downside risk to our FY15 PBV (x) 0.9 0.9 0.8 0.8 sales assumption, 2) the possibility of further GM squeeze if auto Dividend (Bt) 0.5 0.3 0.4 0.4 production were to be lower than we currently assume in 1H15 and 3) Dividend yield (%) 3.2 2.0 2.3 2.3 ROE (%) 12.0 6.8 8.2 9.1 uncertainty over whether the planned launches of new models by auto makers will go ahead as earlier scheduled. We would like to see CG rating some forward indicators of an auto industry recovery before we considered changing our rating.

Suwat Bumrungchatudom Securities Fundamental Investment Analyst [email protected] +66 2 618 1340

See disclaimer at the end of report

AH : Financial Tables – Year

PROFIT & LOSS (Btm ) 2012 2013 2014 2015E 2016E Revenue growth and asset turnover Revenue 16,120 15,627 14,572 15,301 16,066

Cost of sales and services (15,058) (14,552) (13,964) (14,608) (15,303) % Revenue growth (%) (LHS) x Gross profit 1,062 1,075 608 693 763 Asset turnover (x) (RHS) SG&A (822) (859) (744) (766) (789) 80 1.50 EBIT 240 216 (136) (73) (26) 60 1.25 1.00 Interest expense (289) (273) (208) (198) (188) 40 Other income/exp. 691 468 624 658 694 0.75 20 EBT 642 411 279 387 480 0.50 Corporate tax (38) (74) (23) (32) (39) 0 0.25 After-tax net profit (loss) 604 337 257 356 441 -20 0.00 Minority interest (6) (24) (19) (30) (37) 10 11 12 13 14 15E 16E Equity earnings from affiliates 324 247 130 139 146 Extra items 051000 A/C receivable & A/C payable days Net profit (loss) 921 611 367 465 550 Reported EPS 3.43 1.89 1.14 1.44 1.70 days AR / Sales (days) AP / Cost of Goods (days) Fully diluted EPS 3.25 1.89 1.14 1.44 1.70 100 Core net profit 603.7 337.2 256.6 355.6 440.8 Cor e EPS 2.25 1.05 0.80 1.10 1.36 80 EBIT DA 1,004 982 591 690 775 60 KEY RATIOS 40 Revenue grow th (%) 55.7 (3.1) (6.8) 5.0 5.0 Gross margin (%) 6.6 6.9 4.2 4.5 4.8 20 EBITDA margin (%) 6.2 6.3 4.1 4.5 4.8 0 Operating margin (%) (0.3) (0.4) (2.4) (1.8) (1.3) 10 11 12 13 14 15E 16E 5.7 3.9 2.5 3.0 3.4 Net margin (%) Profit margins Core profit margin (%) 3.7 2.2 1.8 2.3 2.7 ROA (%) 7.3 4.6 3.0 3.7 3.6 % Gross margin (%) ROCE (%) 12.6 12.5 9.9 10.8 6.2 EBIT margin (%) Asset turnover (x) 1.2 1.2 1.2 1.2 0.9 10 Current ratio (x) 0.7 0.8 0.6 0.6 0.8 5 Gearing ratio (x) 1.8 1.3 1.2 1.2 1.8 Interest coverage (x) (0.8) (0.8) (0.7) (0.4) (0.1) 0 BAL ANCE SHEET ( Bt m ) -5 Cash & Equivalent 207 238 314 531 569 Accounts receivable 2,801 2,257 1,900 1,995 2,095 -10 Inventory 1,282 1,222 1,210 1,265 1,325 10 11 12 13 14 15E 16E PP&E- net 6,541 6,674 6,319 6,445 6,574 Capital expenditure Other assets 2,992 2,189 2,340 2,566 6,808 13,823 12,579 12,082 12,802 17,371 Capex (Bt,bn) Total assets Bt,bn % Accounts payable 3,093 2,128 2,318 2,424 3,726 Capex / Net PPE (%) ST debts & current portion 2,734 2,602 3,825 4,016 1,207 2.0 35 30 Long-term debt 2,694 2,072 0 0 3,353 1.6 Other liabilities 332 306 258 323 2,661 25 1.2 Total liabilities 8,854 7,109 6,401 6,763 10,947 20 Paid-up capital 269 323 323 323 323 0.8 15 Share premium 2,164 2,164 2,164 2,164 2,112 10 0.4 Retained earnings 2,413 2,820 3,027 3,379 3,816 5 Shareholders equity 4,846 5,307 5,514 5,866 6,250 0.0 0 Minority interests 124 163 167 173 174 10 11 12 13 14 15E 16E Total Liab.&Shareholders' equity 13,823 12,579 12,082 12,802 17,371 Debt serviceability CASH FLOW (Btm) Net inc ome 921 611 367 465 550 x (ST debt + Interest) / EBITDA Depreciation and amortization 764 766 727763 802 (Debt + Interest) / EBITDA 10 Change in w orking capital (614) 584 543 570 599 FX, non-cash adjustment & others 0 0 0 0 0 0 Cash flows from operating activities 1,068 1,961 1,637 1,799 1,951 Capex (Invest)/Divest (1,237) (866) (568) (550) (600) -10 236 122 192 (85) (150) Others -20 Cash flow s from investing activities (1,001) (744) (376) (635) (750) Debt financing (repayment) 1,703 (1,042) (843) (550) (850) -30 Equity financing (1,364) 0000 10 11 12 13 14 15E 16E Dividend payment (131) (180) (110) (97) (113) Others 236 122 192 (85) (150) Dividend payout Cash flows from financing activities 212 (1,186) (1,162) (947) (1,163) Dividend (Bt) Bt/Shr % Net change in cash 279 31 99 217 38 Payout ratio (%) 0.74 Free cash flow (Btm) (169) 1,095 1,069 1,249 1,351 0.8 35 FCF pe r s har e (Bt) (0.63) 3.39 3.31 3.87 4.18 0.7 30 0.6 0.49 25 2012 2013 2014 2015E 2016E 0.5 0.42 0.35 0.35 20 GDP grow th (%) 5.5 2.6 0.7 4.0 4.3 0.4 0.30 15 Auto productions ('000 unit) 2,430.0 2,550.0 2,400.0 2,100.0 2,300.0 0.3 New car sales ('000 unit) 1,430.0 1,300.0 1,350.0 1,000.0 1,100.0 0.2 10 Auto export ('000 unit) 1,000.0 1,250.0 1,050.0 1,100.0 1,200.0 0.1 0.00 5 Auto production grow th (%) 66.7 4.9 (5.9) 11.7 9.5 0.0 0 New car sale grow th (%) 79.6 (9.1) 3.8 0.0 10.0 10 11 12 13 14 15E 16E

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AH : Financial Tables – Quarter

QUARTERLY PROFIT & LOSS (Btm ) 4Q13 1Q14 2Q14 3Q14 4Q14 Revenue trend Revenue 3,370 3,574 3,634 3,903 3,461 Bt,bn Revenue (Bt,bn) (LHS) % Cost of sales and services (3,210) (3,355) (3,524) (3,733) (3,353) Revenue growth (% YoY) Gross profit 160 220 110 170 108 4.0 5 3.9 0 SG&A (206) (173) (216) (177) (178) 3.8 (5) EBIT (46) 46 (106) (7) (70) 3.7 (10) 3.6 (15) Interest expense (64) (56) (51) (55) (46) 3.5 Other income/exp. 66 117 235 136 136 3.4 (20) 3.3 (25) EBT (44) 107 78 74 20 3.2 (30) Corporate tax (44) (4) (6) (4) (9) 3.1 (35) After-tax net profit (loss) (88) 103 72 70 11 2Q13 4Q13 2Q14 4Q14 Minority interest (10) (1) (6) (10) (2) Revenue trend (accumulated) Equity earnings from affiliates 49 51 35 22 22 Accum. Revenue (Bt,bn) Bt,bn % Extra items 210000 % of FY Revenue Net profit (loss) 1 153 101 82 31 18 16 100 100 120 Reported EPS 0.00 0.47 0.31 0.25 0.10 14 78 76 100 Fully diluted EPS 0.00 0.47 0.31 0.25 0.10 12 54 80 10 49 Core net profit (88) 103 72 70 11 8 60 Core EPS (0.27) 0.32 0.22 0.22 0.03 6 25 40 EBITDA 91 224 70 171 126 4 2 20 0 0 KEY RATIOS 2Q13 4Q13 2Q14 4Q14 Gross margin (%) 4.7 6.1 3.0 4.4 3.1 EBITDA margin (%) 2.7 6.3 1.9 4.4 3.6 Net profit trend (accumulated) Operating margin (%) (1.4) 1.3 (2.9) (0.2) (2.0) Accum. Profit (Bt,m) Bt,m % Net margin (%) 0.0 4.3 2.8 2.1 0.9 % of FY Profit 800 Core profit margin (%) 0.1 2.7 (2.0) 0.4 (1.4) 100 100 100 120 91 100 BV (Bt) 16.5 16.8 17.0 17.0 17.0 600 76 69 ROE (%) 0.1 11.3 7.3 6.0 2.3 80 400 ROA (%) 0.0 4.8 3.2 2.7 1.0 42 60 40 Current ratio (x) 0.8 0.7 0.8 0.8 0.8 200 Gearing ratio (x) 1.3 1.3 1.3 1.2 1.2 20 Interest coverage (x) (1.4) 1.2 (0.5) (8.4) (0.7) 0 0 2Q13 4Q13 2Q14 4Q14 QUARTERLY BALANCE SHEET (Btm ) Cash & Equivalent 238 174 253 164 165 Gross profit margin Accounts receivable 2,257 2,072 2,030 1,972 1,972 % FY GPM (%) Gross margin (%) Inventory 1,222 1,478 1,479 1,257 1,257 8 PP&E-net 6,674 6,613 6,455 6,396 6,397 7 Other assets 2,189 2,322 2,410 2,390 2,388 6 5 Total assets 12,579 12,659 12,627 12,179 12,179 4 Accounts payable 2,128 2,362 2,305 2,437 2,437 3 ST debts & current portion 2,602 2,780 2,503 2,020 2,020 2 Long-term debt 2,072 1,605 1,871 1,794 1,794 1 0 Other liabilities 306 318 281 267 267 2Q13 4Q13 2Q14 4Q14 Total liabilities 7,109 7,065 6,960 6,518 6,518 Paid-up capital 323 323 323 323 323 EBIT margin Share premium 2,164 2,164 2,164 2,164 2,164 % FY EBIT margin (%) Retained earnings 2,820 2,942 3,006 3,001 3,001 EBIT margin (%) 3 Shareholders equity 5,307 5,429 5,493 5,488 5,488 2 Minority interests 163 166 174 174 174 1 Total Liab.&Shareholders' equity 12,579 12,659 12,627 12,179 12,179 0 -1 Industry data 4Q13 1Q14 2Q14 3Q14 4Q14 -2 Auto production ('000 unit) 527 517 435 456 471 -3 New car sale ('000 unit) 296 229 217 207 233 -4 Auto export ('000 unit) 281 275 269 279 237 2Q13 4Q13 2Q14 4Q14

Auto production grow th QoQ (%) (10.6) (1.8) (15.9) 4.8 3.1 New car sale grow th QoQ(%) 1.0 (22.7) (5.4) (4.4) 12.7 Auto export grow th QoQ (%) (7.6) (2.0) (2.4) 3.9 (14.9)

Company profile The AAPICO Group produces a great variety of automotive parts, including pressed and stamped parts (such as steel fuel tanks and chassis frames), as well as forged, machined, and plastic parts. In addition, the Company also produces car accessories. The majority of the dies and jigs used to manufacture these OEM auto parts are designed and produced by AAPICO. Some products that fall into the “non-automotive parts” category include car dealerships and technology products, such as car navigation maps and Enterprise Resource Planning.

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Figure 1 : 4Q14 results

FY Ended 31 Dec (Btm) 4Q14 4Q13 YoY % 3Q14 QoQ % 2014 2013 YoY %

Income Statement Revenue 3,461 3,370 3 3,903 (11) 14,572 15,719 (7) Cost of sales and services (3,353) (3,210) 4 (3,733) (10) (13,964) (14,695) (5) • Sales dropped QoQ EBITDA 126 91 39 171 591 982 (40) EBIT (70) (46) nm (7) nm (136) 216 (163) Interest expense (46) (64) 0 (55) 0 (208) (273) 0 Other income/exp. 136 66 107 136 0 624 468 33 Equity earnings from affiliates 22 49 (55) 22 (2) 130 247 (47) Extra items 0210 0 0 0510 EBT 20 (44) nm 74 (73) 279 475 (41)

Corporate tax (9) (44) (79) (4) 129 (23) (74) (69) Minority interest (2) (10) 0 (10) 0 (19) (24) 0 Net profit (loss) 31 1.4 2,167 82 (62) 367 611 (40) Reported EPS 0.10 0.00 2,167 0.25 (62) 1.14 1.89 (40) Core net profit 11 (88) nm 70 (84) 257 337 (24)

Key ratios Gross margin (%) 3.1 4.7 4.4 4.2 6.5 EBITDA margin (%) 3.6 2.7 4.4 4.1 6.2 • GM was down QoQ and YoY EBIT margin (%) (2.0) (1.4) (0.2) (0.9) 1.4 Tax rate (%) 46.0 (99.7) 5.5 8.2 15.5 • Net margin fell QoQ Net margin (%) 0.9 0.0 2.1 2.5 3.9 Current ratio (x) 0.8 0.8 0.8 0.8 0.8 Gearing ratio (x) 1.2 1.3 1.2 1.2 1.3 Interest coverage (x) (0.7) (1.4) (8.4) (0.7) 0.8

Sources: Company data, Bualuang Research estimates

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Sector Comparisons

Bloomberg Price Market Cap PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%) (US$ Code (local curr.) equivalent) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Thai Rung Union Car TRU TB AUD5.2 93 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Inoue Rubber (Thailand) IRC TB IDR16.0 99 9.3 8.6 n.a. n.a. 1.2 1.1 12.7 14.0 4.2 4.4 Thai Steel Cable TSC TB IDR13.8 111 16.2 11.7 n.a. n.a. n.a. n.a. 9.0 12.0 n.a. n.a. Aapico Hitech AH TB THB15.10 151 10.5 8.9 26.7 18.1 0.8 0.8 8.2 9.1 2.3 2.3 P.C.S. Machine Group Holding PCSGH TB THB8.85 422 11.7 10.9 63.1 7.1 2.5 2.4 22.3 22.8 5.6 6.8 Somboon Advance TechnologySAT TB THB18.50 243 9.1 8.1 33.9 12.6 1.3 1.2 15.7 16.0 4.1 4.9 Thai Stanley Electric STANLY TB THB210.00 497 14.0 11.8 -22.7 18.3 1.4 1.3 10.3 11.3 2.4 2.6 Simple average 11.8 10.0 25.3 14.0 1.5 1.4 13.0 14.2 3.7 4.2

PER band versus SD (next 12 months) PBV band versus SD (next 12 months)

x x 25 3.1 +3.0 SD = 2.51x 20 2.6

+0.3 SD = 15.24x 2.1 +2.0 SD = 1.95x 15 +0.2 SD = 12.61x 1.6 +1.0 SD = 1.39x +0.1 SD = 9.97x 10 LT-average = 7.34x 1.1 LT-average = 0.83x -0.1 SD = 4.70x 5 -0.15 SD = 3.38x 0.6 -0.5 SD = 0.55x -1.0 SD = 0.27x 0 0.1 YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15

PER band and share price PBV band and share price

45 40 17.0x 1.8x 35 35 14.0x 8 30 1.4x 25 11.0x 25 6 15 8.0x 1.1x 20 5.0x 0.8x 5 15 0.5x -5YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 10 -15 5 0.2x 0 -25 -5YE01 YE03 YE05 YE07 YE09 YE11 YE13 YE15 -35 Foreign holding Management trading activities during past six months

% AH Auto Btm 60 0.0 Buy 50.3 -0.2 40 -0.4 Sell -0.6 20 -0.8 0 -1.0 10/14 11/14 12/14 1/15 2/15 3/15 10/14 11/14 12/14 1/15 2/15 3/15

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BUALUANG RESEARCH – RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS

BUY: Expected positive total returns of 15% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is months. expected to outperform the relevant primary market index over the next 12 months. HOLD: Expected total returns of between -15% and +15% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, is months. expected to perform in line with the relevant primary market index over the next 12 SELL: Expected negative total returns of 15% or more over the next 12 months. months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is TRADING BUY: Expected positive total returns of 15% or more over the next expected to underperform the relevant primary market index over the next 12 3 months. months.

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