Driving growth on tyres and wheels
Both are involved in the manufacture and distribution of wheels and tyres for
the after-market. Both companies have family members as their major
shareholders. But mainboard-listed Stamford Tyres and YHI International could
not be more different than aluminium and rubber.
Stamford is Singapore's biggest distributor and retailer of tyres and rims.
YHI, on the other hand, has virtually no retail presence. But the one main
difference is that while Stamford's performance rides on tyres, YHI's growth
driver is wheel manufacture.
Stamford has a wheel factory in Bangkok which began production last October,
but it is better known for the contract-manufacturing and retailing of tyres,
as well as for its fleet management. YHI's core business, on the other hand, is
distribution, especially of Yokohama tyres, but its forte is in light alloy
rims, which it designs and makes in factories in China, Taiwan, and soon, in
These two products are significant in a region where the automotive industry
is booming and both companies appear poised to accelerate with this growth.
Reaping the fruit
Last week, Stamford announced its net profit for FY2005 fell 25 per cent to
$8.6 million because of start-up costs incurred in building up its proprietary
brands and in realigning its distribution structure. Its FY2005 price-earnings
ratio was 9.9 times. But because the company expects to 'reap the fruits' of
its investments in FY2006 and beyond, its projected PE for the next financial
year is said to be about 7.0 times. This is below the region's industry average
for motor-related listed companies of 12.
YHI rolled to a 22 per cent higher net profit of $5.13 million in the first
quarter of FY2005, giving the stock a PE of 12.4 times. But YHI's projected PE
by the end of the financial year is expected to fall to about 10 times.
A better indication of the companies' future performance, however, lies with
their current strategies.
Over the last 12 months, Stamford expanded the number of retail outlets in
Asean, as well as invested in additional distribution points in China. More
importantly, it has lately secured outsourced manufacturing contracts for bus
and truck radial tyres in China to add to its other products - bias and radial
tyres. This is expected to net an additional $30 million in annual sales in
Europe. Further growth will also come from its wheel plant, which broke even
after six months of production and is now running two lines with a total output
of almost half a million pieces a year.
YHI's wheel output is even more impressive. Its two existing factories
already roll out 1.2 million pieces and it plans to double the number in five
years' time to become the world's top wheel maker in the after-market.
The company is confident of achieving this goal because as an original design
manufacturer, it provides a unique service - it assumes responsibility for the
entire supply chain, from design and development to production and
Currently, manufacturing accounts for 30 per cent of its total revenue but
44 per cent of net profit.
Little wonder, then, that two new plants are in the pipeline - one in China
and one in Malaysia, with the establishment of the latter being a strategic
move to tap the Asean Free Trade Area.
Both companies are in the after-market business, where rims and tyres are
sold on the replacement market.
This segment is different from the OEM or original equipment manufacturing
market, where factories produce for carmakers.
With China's growing purchasing power, and the increasing penetration in
Asean in terms of automobiles per inhabitant, there will be growing
opportunities in the after-market business.
It won't be difficult to imagine these two Singapore companies rolling
merrily along with the boom.
《The Business Times》