BUY S$0.30
Price Target : S$ 0.54
At a Glance
• 2Q11 results in line with our estimates
• China OEM program on track for FY12F production
• Divestment of Yokohama China will improve its position to promote its own brands
• Maintain Buy and S$0.54 TP
Comment on Results
Results within expectations. 2Q11 results were in line with our estimates. Revenue grew 11% y-o-y to S$134m from S$121m while earnings rose 13% from S$5.9m to S$6.7m. The results were driven by the manufacturing segment, which increased 14%. EU’s implementation of 22.3% anti dumping duties on alloy wheel imports from China last year resulted in increased production from Malaysia’s Sepang plant for European customers. Gross margin (+0.4ppt) and net margin (+0.1 ppt) improved as a result of better productivity, hedging strategies and cost control.
Divestment in Yokohama China entities will allow increased activities in China. During the quarter, YHI divested its entire 49% stake in Yokohama Tire Sales (Shanghai) Co. Ltd and 10% stake in Hang Zhou Yokohama Tire Co Ltd. YHI is expected to book an investment gain of S$7.9m from the sale in 2H11. Accordingly, contribution to associate income will cease in 2H11. We believe the divestment will improve YHI’s position to promote its own brands and other third party products in China.
FY12F OEM developments on track. YHI’s China OEM program is also on track for production in FY12F. Targeted total capacity of 1m units is scheduled for trial production in 4Q11. We expect manufacturing revenue to grow 25% in FY12F.
Recommendation
Maintain Buy, S$0.54 TP. No change to earnings estimates. Maintain BUY and S$0.54 TP based on 8x blended FY11/FY12F core earnings.
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