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

A member of MUFG, a global financial group STARK CORPORATION “STARK” Adisak PROMBUN

Business overview (1) Source: Company Data, Krungsri Securities 2

Business overview (2) Source: Company Data, Krungsri Securities 3

Business overview (3) Source: Company Data, Krungsri Securities 4

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 137,000 55,000 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 5

Revenue Structure (1) 2019 Revenue Breakdown by Business Unit 2021F Revenue Breakdown by Business Unit ADS, ADS, 7% 12% DVN, 21% Bt25.3b Bt11.9b PDITL, 48% TPC, 24% PDITL, 88% Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities 6

Revenue Structure (2) PDITL’s Revenue Breakdown by Customer TPC’s Revenue Breakdown by Customer B2C, B2C, 8% 2% B2G, B2G, 18% Export, 30% Export, 12% 29% B2B, B2B, 50% 51% Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities 7

Cost Structure COGS Breakdown at PDITL (TPC & DVN) COGS Breakdown at ADS Utilities, Rents, 5% 11% Salaries , 10% Raw Salaries materials , 89% , 85% Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities 8

Production, consumption and export of electric wires Electric wires production (tons) Domestic electric wires consumption (tons) 12,000 April volume grew by +22% yoy April volume grew by +46% yoy 12,000 4M20 volume grew by +11% yoy 4M20 volume grew by +18% yoy 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2018 2019 2020 Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities Electric wires export (tons) Electric wires trading value (Btm) April volume increased by +53% yoy April value grew by +39% yoy 700 4M20 volume decreased by -7% yoy 4M20 value grew by +12% yoy 1,800 600 500 1,400 400 1,000 300 200 600 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2018 2019 2020 Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities 9

Production, consumption and export of electric cables Electric cables production (tons) Domestic electric cables consumption (tons) 3,500 5,000 April volume grew by +3% yoy April volume reduced by -15% yoy 4M20 volume grew by +5% yoy 4M20 volume grew by +16% yoy 4,000 3,000 3,000 2,500 2,000 2,000 1,000 1,500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2018 2019 2020 Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities Electric cables export (tons) Electric cables trading value (Btm) April volume reduced by -61% yoy 800 400 April value grew by +5% yoy 4M20 volume reduced by -41% yoy 4M20 value grew by +19% yoy 300 700 200 600 100 500 0 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2019 2020 2018 2019 2020 Source: OIE, Krungsri Securities Source: OIE, Krungsri Securities 10

Industry outlook • 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. Source: IMF (World Economic Outlook, April 2020) 11

Financial position Interest bearing debt / Equity Debt service coverage ratio (DSCR) 4.0x 3.0x 2.5x 3.1x 2.5x 3.0x 2.1x 2.0x 1.8x 2.1x 1.4x 2.0x 1.5x 1.4x 1.4x 1.0x 0.8x 1.0x 0.5x 0.5x 0.0x 0.0x 2020F 2021F 2022F 2020F 2021F 2022F 2018 2019 2018 2019 Source: Company data, Krungsri Securities 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. 12

Expect earning to grow by leaps and bounds 2,500 1200.0% 1033% 1000.0% 2,000 800.0% 1,500 600.0% 1,000 400.0% 500 200.0% 41% 16% 0 0.0% 2018 2019 2020F 2021F 2022F Source: Company data, Krungsri Securities 13

Valuation and assumption Valuation table PER Fair value (Bt/sh) We applied a premium valuation We applied a premium valuation 25.0x 2.06 to its peers in the same segment to its peers in the same segment + 8.3% (CTW is trading at 26x PER) (CTW is trading at 26x PER) 30.0x 2.47 because the company is entering because the company is entering 35.0x 2.89 the rapid-growth cycle. the rapid-growth cycle. 40.0x 3.30 45.0x 3.71 Source: Company data, Krungsri Securities Assumption table 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 Source: Company data, Krungsri Securities 14

Peer comparison (1) PER LTM 2020F 2021F 22.60 20.63 13.84 Prysmian SPA (EUR) + 8.3% 27.90 17.53 14.29 Hengtong Optic-Electric (CNY) 25.43 11.10 Nexans SA (EUR) n.a. 10.35 16.07 12.27 Furukawa Electric (JPY) 17.27 Walsin Lihwa CORP (TWD) n.a. n.a. 14.67 16.48 13.49 Polycab India LTD (INR) Far East Smarter Energy (CNY) n.a. n.a. n.a. Source: Company data, Krungsri Securities 15

Peer comparison (2) % Revenue CAGR (2016-2018) 2018 EBITDA margin (%) 12.0 30.0 10.0 24.5 25.0 10.0 7.7 20.0 7.4 8.0 6.9 13.2 15.0 11.3 5.2 6.0 10.0 3.6 5.6 4.0 3.2 5.0 n.a. 2.0 1.1 0.0 -1.7 0.0 (5.0) YAZAKI CTW BCC Phelps LS Prymian Nexans YAZAKI CTW BCC Phelps LS Prymian Nexans Dodge Dodge Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities 16

Peer comparison (3) Average cash conversion cycle (2016-2018) 200.0 183.4 167.1 160.0 120.0 102.7 80.0 60.9 n.a. 34.1 40.0 25.5 0.0 YAZAKI CTW BCC Phelps Dodge LS Prymian Nexans Days 75.4 A/R 98.6 104.7 46.6 154.2 80.7 78.1 76.6 Inventory 101.4 89.6 72.8 128.1 67.0 66.1 93.1 A/P 16.6 27.2 16.7 250.2 122.2 83.3 Source: Company data, Krungsri Securities 17

Sensitivity analysis Sensitivity of foreign exchange impact to PDITL’s net profit Expected effect by THB depreciation of Bt1.0 per USD Assumption FX gain / loss FX gain / loss Export Domestic from change in from change in Total sales revenue cost PDITL 10% 90% PDITL 5 -21 -17 Source: Company data, Krungsri Securities Import Local contents contents PDITL 85% 15% Sensitivity of foreign exchange impact to TPC’s net profit Expected effect by VND depreciation which Assumption equivalented to Bt1.0 per USD FX gain / loss FX gain / loss Export Domestic from change in from change in Total sales revenue cost TPC 30% 70% TPC 7 -32 -25 Source: Company data, Krungsri Securities Import Local contents contents TPC 85% 15% Source: Company data, Krungsri Securities 18

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Q & A 21