Driving growth on tyres and wheels

(2005-07-04)

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 Malaysia.

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.

Supply chain

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 distribution.

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》

  

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