Target price : Bt5.30
Recommendation : BUY
Closing Price (17 March 09) : Bt3.94
Slowing growth outlook in the face of deteriorating economic environment
- KCAR posted a 2008 profit of Bt227.77m, up 7% YoY as total revenue grew 20.1%.
- The sluggish economic environment will dampen the operating outlook this year, according to management.
- KCAR management expects to keep its 2009 dividend payout ratio at 30% of net profit. We forecast KCAR to pay a dividend yield of roughly 5-6%.
- We maintain a 'Long-Term BUY' rating on KCAR with a 2009 price target of Bt5.30/share.
Strong profit growth in 2008
KCAR, Thailand's third largest car rent and lease firm reported total revenue growth of 20.1% in 2008. Growth was broad-based. Used car sales jumped 49.2% to 1,517 units against 1,224 units a year earlier. Expenses also edged upwards driven by depreciation charges and repair expenses for retired/used cars before sale. Interest expenses increased on borrowings with funding costs at an average of 6%. Effective tax rate slipped to 8.3% from a year-ago level of 11.3%. In sum, KCAR posted a 2008 profit of Bt227.77m, up 7% YoY.
Growth set to continue but at a slowing pace in 2009 in the face of economic slump, according to management
The Federation of Thai Industries (FTI) has forecast a 20% drop in 2009 vehicle sales to 492,216 units. KCAR management expects car rental industry to grow by 1-5%. The cocktail of the weakened economic environment and eroding purchasing power would increasingly turn business operators to car rentals instead of purchases against the backdrop of economic misery. The used car market is forecast to grow by 10%. KCAR expects growth at its car rental business to outstrip the industry average at 5-10%. Used car sales should rise thanks to the addition of a new 'Toyota Sure' outlet and new subsidiary branches. KCAR plans to (i) spend about Bt1b to buy 1,500 new vehicles to its fleet and (ii) sell 1,000 retired vehicles. The sale is expected to generate roughly Bt500m in revenues.
Reduced dividend payout ratio in 2008; management expects to keep 2009 dividend payout ratio at 30%
KCAR announced a 2008 dividend of Bt0.25/share, translating into a mere 27.5% payout ratio, halving its historical norm of 60%. The stock will trade ex-dividend (XD) on Mar 31, and the dividend is scheduled to be paid on May 22, 2009. The reduced dividend payout ratio reflected (i) falling market interest rates, which still made dividend yield attractive, and (ii) liquidity management in a weak economic environment. KCAR management however expects to keep its 2009 dividend payout ratio at about 30%. We expect KCAR to pay a 2009 dividend of Bt0.23/share.
2009 price target of Bt5.30/share
We hold a bullish view on KCAR based on its competitive edge in terms of its large rental vehicle fleet. There are only five major players in the industry. Operating costs are also comparatively lower than its competitors as KCAR has its own auto service centers and used car sales outlets, enabling it to bypass middlemen. For new strategic partner, no significant headway has been made though KCAR remains interested in the issue.
We leave our 2009 profit forecast unchanged at Bt212.48m, down 6.7% YoY. Our price target of Bt5.30/share is equivalent to an average of 1.2x P/BV and 6.2x P/E. Based on some share price upside from current levels and estimated 2009 dividend yield of 5-6%, we maintain a 'Long-Term BUY' rating on KCAR.
By Phillip Securities (Thailand) Plc. on Mar 18, 2009
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