Stamford Tyres

Any view on Stamford Tyres?
It reported a $13.3m profit (or an eps of 5.7c) for financial year ended 30 April 2011; and was cautiously optimistic of profit improvement in the current financial year.

Group profit for the first half of the current FY was 33% higher; though floods in Thailand and depreciation of the South African Rand (against S$) lowered Q2 profit.

At the end of Q2 (31 Oct 2011), inventories stood at $148m, significantly higher than the $107m the year before. Stamford Tyres made no comparison of these two figures, but commented that the increase over $95m (as at 30 April 2011) was to meet anticipated seasonal rise in tyre demand.

Q3 results should be out by this week.

In 2011, Yokohama assumed full ownership of the tyre manufacturing company, Hang Zhou Yokohama, and the tyre distribution company, Yokohama Tire Sales (Shanghai), after buying out YHI's minority stakes.

Sumitomo Rubber Industries' (SRI) has initiated a similar move. It plans to buy out the remaining 40% stake in Sumitomo Rubber Industries Tyre Pacific (SRITP) from Tyre Pacific, which is jointly owned by Stamford Tyres and Tan Chong International.

SRITP currently distributes Dunlop tyres in China. After being taken wholly by SRI, SRITP will leave Shanghai, Beijing and Guangzhou to Tyre Pacific.

YHI took a 10% stake in the Yokohama's tyre factory in Hang Zhou. After selling off its stake in the tyre distribution company to Yokohama, YHI plays no role in this business segment.

On the other hand, Stamford did not invest in the Sumitomo's tyre factory in China, and is being allowed to distribute Dunlop tyres (together with Tan Chong International) in three tier one cities. Is its relationship with SRI much stronger?

Can we distil the revenue figures down to actual sales volume trend analysis by regions (to net out the effects of price and forex)?

Tks.

(14-03-2012, 12:58 PM)portuser Wrote: Any view on Stamford Tyres?
It reported a $13.3m profit (or an eps of 5.7c) for financial year ended 30 April 2011; and was cautiously optimistic of profit improvement in the current financial year.

Group profit for the first half of the current FY was 33% higher; though floods in Thailand and depreciation of the South African Rand (against S$) lowered Q2 profit.

At the end of Q2 (31 Oct 2011), inventories stood at $148m, significantly higher than the $107m the year before. Stamford Tyres made no comparison of these two figures, but commented that the increase over $95m (as at 30 April 2011) was to meet anticipated seasonal rise in tyre demand.

Q3 results should be out by this week.

The $22m payout itself, at 8.19 times profit, and 3.65 times book value, seems reasonable.
If the recurrent profit from distributing tyres in Beijing, Shanghai and Guangzhou is not insignificant, actual compensation by Sumitomo Rubber Industries is much higher.
I think during the EGM, management should elaborate on whether Stamford Tyres will gain more by giving up distributing Dunlop tyres in China and channelling its resources to South Africa and India.
South Africa and India have much fewer cars than China. Will this disadvantage be taken care of by the full profits from these two countries against the 20% share of profit from China? To what extent will the replacement of RMB profit by a profit denominated by the weaker South African Rand affect Stamford Tyres' bottomline?

That may be the fate of distributor in general.
Stamford Tyres has often highlighted its strong relationship with Sumitomo, which is its shareholder as well as principal supplier. This seems to be the case going by the reasonable financial compensation from Sumitomo plus Stamford Tyres (together with Tan Chong International) being allowed to operate in the three major Chinese cities.
Stamford Tyres has indicated during an AGM that the shops retailing Dunlop tyres are put up by Sumitomo.

I gave 3.65 as the payout expressed as the multiple of book value.
In announcing the disposal of its 20% stake in SRITP, the company states that the $22m is based on a price earnings ratio for SRITP of approximately 8.19 and a premium of approximately 2.65 times of its NTA value as at 31 December 2011.

A quick reading of this may suggest that actual compensation is 3.65 times book value as 2.65 is the premium. But quick calculations show that 2.65 is simply the multiple of book value, and not the premium, as I understand it to be.

Nevertheless, 2.65 times book value is not small.

I am trying to understand and learn more about tyre manufacturing and distributions...

How resilient is this line of business to recession?
Isn't car considered a luxury good?

Why did Stamford Tyre start off in South Africa first and not some other African countries?

Is currency volatility (i.e. South African Rand) a key concern as the company shifts its focus to the country?

Tks.

(09-04-2012, 08:31 AM)portuser Wrote: I gave 3.65 as the payout expressed as the multiple of book value.
In announcing the disposal of its 20% stake in SRITP, the company states that the $22m is based on a price earnings ratio for SRITP of approximately 8.19 and a premium of approximately 2.65 times of its NTA value as at 31 December 2011.

A quick reading of this may suggest that actual compensation is 3.65 times book value as 2.65 is the premium. But quick calculations show that 2.65 is simply the multiple of book value, and not the premium, as I understand it to be.

Nevertheless, 2.65 times book value is not small.

Currency risk is definitely one area of concern if operating in South Africa.

Does South Africa have enough foreign reserve to fight off speculation in event of financial crisis to prevent the devaluation of its own currency?

Competition is keen in the tyre manufacturing industry as global major brands wrestle market share from each other. This situation is often exacerbated by the increase in cost of raw materials.

Usually, the major tyre manufacturers are able to pass on increases in costs to the dealers.

Due to their limited capability to match the costs at the retail level, dealers will find their gross margins being squeezed.

This seems to be the case in 2007 when GPM dropped from 29% (2006) to 24% (2007).

How can dealers safeguard themselves against this?
Diversify via manufacturing and distribution of own brands?

Cyclical nature of car sales industries in South Africa?

Same fortune as the company? Cyclical?

http://www.naamsa.co.za/flash/immediate.asp?