STARK CORPORATION STARK Adisak PROMBUN Business overview (1) - - PowerPoint PPT Presentation

A member of MUFG, a global financial group

STARK CORPORATION “STARK”

Adisak PROMBUN

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Business overview (1)

Source: Company Data, Krungsri Securities

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Business overview (2)

Source: Company Data, Krungsri Securities

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Business overview (3)

Source: Company Data, Krungsri Securities

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New capacity

PDITL TPC Copper: Capacity (tons/year) 30,000 72,000 Copper: Utilization rate 80% 50% Aluminum: Capacity (tons/year) 25,000 65,000 Aluminum: Utilization rate 70% 50% Total 55,000 137,000

Source: Company Data, Krungsri Securities

The acquisition would benefit STARK in three ways: i. Improve production efficiency and lift production capacity ii. Generate synergies

• iii. Immediate access to Vietnam and other markets

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Source: Company data, Krungsri Securities

Revenue Structure (1)

2021F Revenue Breakdown by Business Unit 2019 Revenue Breakdown by Business Unit

Source: Company data, Krungsri Securities

PDITL, 88% ADS, 12%

Bt11.9b

PDITL, 48% TPC, 24% DVN, 21% ADS, 7%

Bt25.3b

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Source: Company data, Krungsri Securities

Revenue Structure (2)

TPC’s Revenue Breakdown by Customer PDITL’s Revenue Breakdown by Customer

Source: Company data, Krungsri Securities

B2G, 30% B2B, 50% Export, 12% B2C, 8% B2G, 18% B2B, 51% Export, 29% B2C, 2%

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Source: Company data, Krungsri Securities

Cost Structure

COGS Breakdown at ADS COGS Breakdown at PDITL (TPC & DVN)

Source: Company data, Krungsri Securities

Raw materials , 85% Salaries , 10% Utilities, 5% Salaries , 89% Rents, 11%

600 1,000 1,400 1,800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

200 300 400 500 600 700 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

4,000 6,000 8,000 10,000 12,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

4,000 6,000 8,000 10,000 12,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

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Source: OIE, Krungsri Securities

Production, consumption and export of electric wires

Domestic electric wires consumption (tons) Electric wires production (tons)

Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities

Electric wires trading value (Btm) Electric wires export (tons)

Source: OIE, Krungsri Securities

April volume grew by +46% yoy 4M20 volume grew by +18% yoy April volume grew by +22% yoy 4M20 volume grew by +11% yoy April value grew by +39% yoy 4M20 value grew by +12% yoy April volume increased by +53% yoy 4M20 volume decreased by -7% yoy

400 500 600 700 800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

100 200 300 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

1,500 2,000 2,500 3,000 3,500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

1,000 2,000 3,000 4,000 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 2019 2020

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Source: OIE, Krungsri Securities

Production, consumption and export of electric cables

Domestic electric cables consumption (tons) Electric cables production (tons)

Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities

Electric cables trading value (Btm) Electric cables export (tons)

Source: OIE, Krungsri Securities

April volume reduced by -15% yoy 4M20 volume grew by +16% yoy April volume grew by +3% yoy 4M20 volume grew by +5% yoy April value grew by +5% yoy 4M20 value grew by +19% yoy April volume reduced by -61% yoy 4M20 volume reduced by -41% yoy

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Industry outlook

Source: IMF (World Economic Outlook, April 2020)

• Krungsri Research projects domestic

electricity demand would grow by 3.5% per annum, or around 0.9-1.1 times GDP growth.

• Domestic sales of electrical wires is

expected to rise faster than power demand since the electricity demand outside the country is likely to increase as well.

• Electricity of Vietnam (EVN) projects

electricity demand would increase by 10.3-11.3% per year.

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Source: Company data, Krungsri Securities

Financial position

Debt service coverage ratio (DSCR) Interest bearing debt / Equity

Source: Company data, Krungsri Securities

• The creditors have set the following restrictions/conditions: (1) interest-bearing debt to equity

ratio (IBD-to-Equity) not exceed 1.50 times; and (2) debt service coverage ratio (DSCR) shall not be less than 1.10 times.

• The company has received approval from its creditors for a grace period to reduce the financial

ratios by the next accounting period.

2.1x 1.8x 2.5x 1.4x 0.8x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 2018 2019 2020F 2021F 2022F 0.5x 1.4x 1.4x 2.1x 3.1x 0.0x 1.0x 2.0x 3.0x 4.0x 2018 2019 2020F 2021F 2022F

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Expect earning to grow by leaps and bounds

Source: Company data, Krungsri Securities

1033% 41% 16% 0.0% 200.0% 400.0% 600.0% 800.0% 1000.0% 1200.0% 500 1,000 1,500 2,000 2,500 2018 2019 2020F 2021F 2022F

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+ 8.3% Source: Company data, Krungsri Securities

Valuation and assumption

2020F 2021F 2022F

Copper: Capacity (tons/year) 102,000 102,000 102,000 Copper: Utilization rate (%) 51.8 53.2 60.3 Aluminum: Capacity (tons/year) 90,000 90,000 90,000 Aluminum: Utilization rate (%) 48.3 49.8 56.8 USDTHB 32.0 32.0 32.0 Gross Margin (%) 14.9 15.6 15.6 SG&A/sales (%) 5.0 5.0 5.0 Effective tax rate (%) 20.0 20.0 20.0

PER Fair value (Bt/sh)

25.0x 2.06 30.0x 2.47 35.0x 2.89 40.0x 3.30 45.0x 3.71

Source: Company data, Krungsri Securities

Valuation table Assumption table

We applied a premium valuation to its peers in the same segment (CTW is trading at 26x PER) because the company is entering the rapid-growth cycle. We applied a premium valuation to its peers in the same segment (CTW is trading at 26x PER) because the company is entering the rapid-growth cycle.

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+ 8.3% Source: Company data, Krungsri Securities

Peer comparison (1)

PER LTM 2020F 2021F

Prysmian SPA (EUR)

22.60 20.63 13.84

Hengtong Optic-Electric (CNY)

27.90 17.53 14.29

Nexans SA (EUR)

n.a.

25.43 11.10

Furukawa Electric (JPY)

10.35 16.07 12.27

Walsin Lihwa CORP (TWD)

17.27

n.a. n.a.

Polycab India LTD (INR)

14.67 16.48 13.49

Far East Smarter Energy (CNY)

n.a. n.a. n.a.

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Source: Company data, Krungsri Securities

Peer comparison (2)

2018 EBITDA margin (%) % Revenue CAGR (2016-2018)

Source: Company data, Krungsri Securities 3.6 5.2 7.7 10.0 1.1 6.9 7.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 YAZAKI CTW BCC Phelps Dodge LS Prymian Nexans

5.6 11.3 13.2 24.5 n.a.

• 1.7

3.2 (5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 YAZAKI CTW BCC Phelps Dodge LS Prymian Nexans

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Peer comparison (3)

Average cash conversion cycle (2016-2018)

Source: Company data, Krungsri Securities

183.4 167.1 102.7 34.1 n.a. 60.9 25.5 0.0 40.0 80.0 120.0 160.0 200.0 YAZAKI CTW BCC Phelps Dodge LS Prymian Nexans Days A/R 98.6 104.7 46.6 154.2 75.4 80.7 78.1 Inventory 101.4 89.6 72.8 128.1 76.6 67.0 66.1 A/P 16.6 27.2 16.7 250.2 93.1 122.2 83.3

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Source: Company data, Krungsri Securities

Sensitivity analysis

Export Domestic PDITL 10% 90%

FX gain / loss from change in sales revenue FX gain / loss from change in cost Total

PDITL 5

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Import contents Local contents PDITL 85% 15%

Expected effect by THB depreciation of Bt1.0 per USD Assumption

Sensitivity of foreign exchange impact to PDITL’s net profit

Source: Company data, Krungsri Securities

Export Domestic TPC 30% 70%

FX gain / loss from change in sales revenue FX gain / loss from change in cost Total

TPC 7

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Import contents Local contents TPC 85% 15%

Expected effect by VND depreciation which equivalented to Bt1.0 per USD Assumption

Sensitivity of foreign exchange impact to TPC’s net profit

Source: Company data, Krungsri Securities

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Appendix

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Q & A