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5. AAPICO Hitech Public Co., Ltd. Business Report FY ended Dec. 2017

AAPICO Hitech Public Co., Ltd. Business Report FY ended Dec. 2017

Factors
1) Sales
-The Company’s sales for the fiscal year ended December 31, 2017 increased by 9.9% over the previous year to THB 16,642 million. The AAPICO Group's revenue is mainly contributed by its OEM automotive parts business (62% of total revenue). In 2017, the sales contribution from the car navigation system business was nominal at 0.1% of the total revenue.

2) Net Profit
-The Company’s net profit increased by 107.4% to THB 1,182 million in the fiscal year ended December 31, 2017. Compared to last year, the net profit improvement was driven by higher sales, increased earnings and share of profit from associates, as well as from the continual efficiency improvement and strict cost control and cost reduction measures.

Recent Developments

-In 2016, the Company established a wholly owned subsidiary named AAPICO Venture Company Limited to manage mergers and acquisitions and to support investments in start-ups or rapidly developing businesses.

-The Company is studying the feasibility of entering the Japanese market after acquiring a 25.1% stake in Indian holding company Sakthi Global Auto Holdings in May 2017. AAPICO is keen on the Japanese automotive industry and has strategic partners there that have localized their manufacturing plants in Thailand, but the company does not have any operations in Japan. Currently, AAPICO is partners with Japanese firms Sojitz, Sanoh Industrial, Mitsuike and Takagi Seiko. AAPICO is targeting revenue of THB 30 billion by 2020, with its net profit margin reaching 10%. (From an article of Bangkok Post on March 14, 2018)

Outlook

<2018>

-The Company expects that Q1/2018 performance will improve as the first quarter performs better than other quarters. It expects 5-10% sales growth align with the automotive industry forecast of 2 million units. The company also revealed that it plans to expand its business in Malaysia, Indonesia, and Vietnam to meet increasing demand, especially in Malaysia. (From an article of Thun Hoon on January 10, 2018)

<2017>

-The Company expects continuous growth in the second half of the year, as what it had been expecting. It hopes for 5% growth in revenue from 2016 (THB 15.3 billion) as the Thai automotive market has been improving. Currently, 70% of its revenue is from Thailand and 30% is from Malaysia, China, and other countries. In the next 3 to 5 years, the proportion of the revenue might change as the growth in the foreign market is higher than the domestic market such as Malaysian market, where the company is considering to establish a plant. The company also revealed that it has been discussing with many companies regarding to its merger and acquisition (M&A) and joint venture (JV) to expand its business for the future growth. (From an article of Thun Hoon on October 24, 2017)

-The Company revealed that the second half of 2017 shows sign of recovery. It is confident that it would achieve its sales target of 5% growth from THB 15.3 billion in 2016 and profit up 3.53% with aligns with the expected growth of the automotive market of 2 million units and as well as from increase in income from China 3-5% and Malaysia 15-25%. (From an article of Thun Hoon on August 3, 2017)

-The Company announced that its performance in the second quarter of FY 2017 is expected to be better than the first quarter’s performance because the recovery of automotive market has increased parts orders. AH still targets 5% increase of 2017 sales compared to the last year due to the continuous trend of growing parts orders. AH is also under the process of discussion with many partners to expand its business abroad such as India, USA, and Japan. AH plans to close at least 1 deal within 2017. (From a Thun Hoon article on June 23, 2017)

Divestitures

-The Company announced that Continental Automotive Holding Netherlands BV has signed a sale and purchase agreement to acquire a 100 percent equity of Quantum Inventions Pte. Ltd. (QI) that AAPICO Hitech had invested in 2014. Currently, it holds 25 percent equity in QI through AAPICO Investment Pte. Ltd. (AIPL), its 100 percent subsidiary in Singapore. In selling this equity, AIPL would receive SGD 9.25 million. As part of the deal, AAPICO ITS Co., Ltd., a 60 percent subsidiary of AAPICO Hitech, needs to sell its 60 percent equity in AAPICO QI Sdn. Bhd. in Malaysia for an amount of SGD 450,000. (From a press release on July 5, 2017)

Business Plan

-The Company announced that it targets total revenue growth of up to 10 percent in 2018 compared with 2017, thanks to the recovery in the auto industry with estimates that car production capacity will reach 2.2 million units in 2018. The company will target revenue from domestic market at 72 per cent of its total revenue next year, with 24 per cent from Malaysia and 4 per cent from the China market. In the first nine months of this year, the company reported total revenue THB 12.13 billion and net profit THB 799 million, up 8.2 per cent and 90 per cent, respectively, from the same period of last year. (From an article of The Nation on December 5, 2017)

-The Company believes that the trend at most carmakers is to move towards to next generation vehicles such as EVs and, in the future, electric vehicles (EVs) are expected to create a major impact on the Thai auto parts industry. EVs will gradually grow over the next 20-30 years, when 100% electric vehicles could make up 20% and hybrid electric vehicles could comprise 30% of car sales worldwide. AAPICO added an R&D unit as they have become essential for auto-related firms in adapting to future trends. The company aims to become a Tier1 parts maker in Asia by 2020 with revenue of THB 30 billion and a net profit margin of 10%. In 2017, it expects its total revenue to grow by 5% to THB 16 billion. (From an article of Bangkok Post on November 17, 2017)

Business Partnership

-The Company announced that it concludes a strategic partnership with Sakthi Automotive Group (Sakthi), and invests THB 3.5 billion (USD 100 million) into Sakthi to become a substantial shareholding partner and grow the business on global scale by utilizing Sakthi’s global manufacturing footprints. Sakthi has, also, agreed to invest USD 50 million into AAPICO Frame & Forging Business in the near future. Both companies have agreed that this partnership is going to provide a global platform for AH to develop their Frame & Forging business on a larger scale by utilizing Sakthi’s current facilities in North America, China, India, and Europe, in addition to current facilities in Thailand. Total global passenger vehicle production in 2016 was approximately 100 million vehicles and AH current footprint covers only 3 million vehicle production (3% of the total market). This investment will give AH access to global vehicle production to grow their business in the future. Sakthi is also going to enjoy the AH relationship with Japanese OEMs to grow their Steering Knuckle business with such OEMs and, also, diversify the product portfolio into Full Chassis Frames and Other Stamping Components along with Forged & Machined parts. (From a press release on May 26, 2017)

Awards

-The Company won the following awards in 2017:

R&D Facilities

-The Company is hopeful that its new research and development unit in Ayutthaya will help raise profit margins and competitiveness in the long term. The new R&D unit integrates existing operations in production facilities in Ayutthaya, Samut Prakan, Rayong, and Chon Buri, and will enable the firm to expand into new segments such as electric vehicle (EV) parts. The Company is set to increase spending in research and development every single year from just THB 10 million currently invested. (From a Bangkok Post article on November 25, 2016)

-In 2016, the Company invested in Mappico Company Limited, a company which focuses on research and development of software and technology related to vehicle navigation and logistics.