Wednesday, August 3, 2011

UOB Kay Hian: Airbags ruling to benefit Hirotako

KUALA LUMPUR: UOB Kay Hian Malaysia Research said a new regulation requiring almost all vehicles to be fitted with two frontal airbags by Jan 12, 2012 benefits airbag maker HIROTAKO HOLDINGS BHD [].

It said on Wednesday, Aug 3 this scenario analysis indicated a 5%-10% upside on Hirotako's 2012F net profit, assuming its net profit 2011F is unchanged from 2010.

UOB Kay Hian Research said the shares were currently trading at 9x 2012F PE (based on its scenario) vs 4.0 times to 7.0 times for other automobile vendors.

'With strong credentials, Hirotako dominates the Malaysian airbag market with 90% market share via its 51% subsidiary, Autoliv Hirotako. Autoliv Inc owns the remaining 49%. We understand that Hiro also dominates the seatbelt market, with about two-thirds market share in Malaysia,' it said.

The research house said?Hirotako manufactures safety restraint systems, which makes up 92% of total 2010 sales while acoustic products contribute 9%.

Safety restraint systems comprise of: a) airbags and steering wheels (60% of safety restraint revenues); and b) seat belts (40%). These are sold to all major original equipment manufacturers (OEM) in the automobile industry in Malaysia. Acoustics products, on the other hand, are used to cushion or muffle noises for a more pleasant ride in the vehicles.

UOB Kay Hian Research said Hirotako's main partner in the safety restraint business is Autoliv Inc, whom we understand is the only automobile safety supplier in Malaysia with dedicated resources to crash test complete vehicles and vehicle bodies in sled tests.

A pioneer in both seatbelts and airbags, Autoliv services leading automobile makers from 80 facilities in 29 countries. In addition, it tests their customers' cars and products at 21 crash test tracks in 11 countries.

Hence, Hirotako can tap on the expertise of Autoliv's 43,000 staff globally.

In addition to its strong TECHNOLOGY [] partner, Autoliv, Hiro's competitive edge includes local knowledge that

other foreign manufacturers lack as well as more competitive selling prices vs imported airbags.

UOB Kay Hian Research said its scenario analysis points to 9.0 times 2012F PE that Hirotako shares are trading at versus the 4.0 times to 7.0 times of its peers.

'Also, Hirotako has 110 million warrants outstanding, representing 25% of its current share base of 433 million shares. However, these warrants are out-of-money given the 92 sen exercise price vs 84 sen closing share price,' it said.

The share price catalysts include requirements for more airbags in new vehicles (of up to four airbags per vehicle ' driver and three passenger seats), announcement that it secured new orders from car makers to meet the new 2012 regulation, and additional orders ahead of new vehicle launches.

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