Stamford Tyres Corp Buy Flooring itstamfordtyres.listedcompany.com/misc/ST_ResearchReport_26022004.pdfSolid prospects in Asian tyre industry Asia's tyre industry has significantly

Flooring it

The prospects for Stamford Tyres are bright, in our view, as it ispositioned in the world's fastest-growing auto region. We expectearnings to accelerate going forward through deeper marketpenetration and greater operational efficiencies. Buy. Key forecasts

FY02A

FY03A

FY04F

FY05F

FY06F

Revenue (S$m) 120.1 163.0 186.2 219.4 259.0

EBITDA (S$m) 11.8 15.4 19.7 25.8 32.8

Reported Net Profit (S$m) 2.76 8.18 11.4 15.1 19.3

Normalised Net Profit (S$m) 2.76 8.18 11.4 15.1 19.3

Normalised EPS (S$) 0.02 0.05 0.06 0.08 0.10

Dividend Per Share (S$) 0.01 0.01 0.01 0.02 0.02

Dividend Yield (%) 1.12 1.12 1.80 2.20 2.82

Normalised PE (x) 37.8 13.0 11.1 9.08 7.10

EV/EBITDA (x) 14.9 10.7 8.05 6.10 4.68

Price/Book Value (x) 2.44 2.16 2.19 1.84 1.52

ROIC (%) 5.63 12.9 17.7 20.4 22.4

Source: Company data, ABN AMRO estimates year to Apr, fully diluted

Solid prospects in Asian tyre industry Asia's tyre industry has significantly outpaced the growth rates in developed countries. With healthy economic conditions in the region, a rapidly growing car population and low vehicle penetration rates, we expect the long-term outlook for auto-parts suppliers to remain strong.

China and Thailand raise prospects Stamford Tyres is set to benefit over the long term from increased demand for auto parts due to its positioning in two of the fastest growing tyre markets in Asia. It has a JV to distribute Dunlop tyres manufactured in China and will also manufacture sports alloy rims in Thailand.

Three-year net income CAGR of 33% Against a backdrop of healthy regional GDP growth and higher consumption rates, we expect Stamford Tyres' new Thai wheel manufacturing operations, growing Asian distribution network and greater operational efficiencies to boost group net income by a three-year CAGR of 33%, while EBIT margins are set to rise from 7.7% in FY03 to 11.2% in FY06F.

Accelerating returns and attractive valuations At 0.4x PEG and 9x FY05F PER, Stamford Tyres appears attractive at current levels. With its promising China and Thai exposures and accelerating returns, we believe its long-term prospects are strong and positive. Our 12-month target price of S$1.05 (51% potential upside) is derived from a three-stage DCF valuation. We initiate coverage with a Buy recommendation.

52-week range: 0.74-0.15

Straits Times Index: 1878.41

BBG AP Autos: 149.47

Automobiles & Parts

Singapore

www.abnamroresearch.com

Analyst

Kevin Chong ABN AMRO Asia Securities (Singapore) Private Ltd

Singapore +65 6230 3323 [email protected]

Disclosures and analyst certifications are at the end of the body of this research.Priced at close of business 24 February 2004. Use of %& indicates that the line item has changed by at least 10%.

63 Chulia Street, Level 10, Singapore 049514, Singapore

Price performance (1M) (3M) (12M)

Price (S$) 0.7 0.5 0.2

Absolute % 2.2 39.0 345.5

Rel market % 2.8 23.4 209.9

Rel sector % 1.7 21.1 223.2

Source: ABN AMRO

Price

S$0.69 Target price

S$1.05

Market capitalisation

S$137.24m (US$80.97m) Avg (12mth) daily volume

S$1.48m (US$0.86m) Reuters

STAS.SI Bloomberg

STC SP

Thursday 26 February 2004 Initiation of coverage

Stamford Tyres Corp Buy

This research report has been prepared for general circulation. It is circulated for information only. The opinions expressed herein do not have regard to the specific investment objectives, or financial situation of any specific person who may read this report. Permit No. MITA (P) 280/05/2003

The Basics

S T A M F O R D T Y R E S C O R P 2 6 F E B R U A R Y 2 0 0 4 2

Key assumptions The Asian tyre market has been growing at a rate of 9-13% over the past several

years and we expect this trend to continue on the back of healthy economic growth in

the region, the rapidly growing vehicle population and increasing consumer spending.

Our assumption of 14-18% yoy revenue growth for Stamford Tyres is slightly above

the industry rate as it takes into account Stamford’s niche product segment of high-

end tyres and sports alloy wheel manufacturing. We expect margins to continue

expanding with EBIT rising from 7.7% in FY03 to 11.2% in FY06F on the back of

greater operational efficiencies and leverage, resulting in a three-year group net

income CAGR of 33%.

How we differ from consensus Our FY04 forecast EPS of S$0.062 is 8.8% below the consensus estimate of S$0.068.

Note that the current market coverage of Stamford Tyres is limited.

Valuation and target price Our 12-month target price of S$1.05, which implies 51% potential upside, is derived

from a three-stage DCF valuation and assumes operating margins will decline from

9-11% over 2004-10 to 8.0-8.5% during the value expansion period of 2011-20.

Financial returns are then expected to fade over five years (2021-25) until they equal

the company’s WACC (9%), as supernormal returns are competed away over the long

term.

Catalysts for share price performance We expect the following factors to move the share price towards our target over the

next 12 months:

■ Better-than-expected performance from the company’s Thai wheel manufacturing

operations.

■ Better-than-expected progress with the SRI-TP joint venture to distribute Dunlop

tyres in China.

■ The possibility of securing new product lines and brands for distribution.

Risks to central scenario ■ The inability to secure adequate tyre allocation from manufacturers (note that

tyres are allocated by manufacturers to distributors).

■ Unexpected disruption to tyre supply in the industry due to an unforeseen event

(eg, fire at a tyre manufacturer).

Distribution of broker recommendations

0

1

2

3

4

Buy

Add

Hold

Red

uce

Sel

l

Source: Multex

Versus consensus

EPS

(S$)

ABN

AMRO

Con-

sensus

%

Diff

FY04F 0.062 0.068 -8.8

FY05F 0.077 0.086 -8.3

FY06F 0.098 0.107 -8.4

Source: Bloomberg, ABN AMRO estimates

Valuation snapshot

Current price S$0.69

Fair value* S$1.05

Target price S$1.05

Upside/downside 51%

*Methodology 3-stage DCF

Source: ABN AMRO estimates

Key events

Date Event

9-Jul-04 FY04 results

Source: Company

K E Y A S S U M P T I O N S A N D S E N S I T I V I T I E S


Key assumptions and sensitivities

Table 1 : Revenue breakdown

YE - April 2002 2003 2004F 2005F 2006F

Revenues - by activity (S$ m)

Wholesale & distribution 90.5 131.5 150.8 172.2 198.1

Retail & fleet 29.3 31.3 34.6 38.6 40.1

Services 0.2 0.2 0.4 0.4 0.5

Other revenues 0.0 0.0 0.4 8.1 20.3

120.1 163.0 186.2 219.4 259.0

Revenues - % of total

Wholesale & distribution 75.4% 80.7% 81.0% 78.5% 76.5%

Retail & fleet 24.4% 19.2% 18.6% 17.6% 15.5%

Services 0.2% 0.1% 0.2% 0.2% 0.2%

Other revenues 0.0% 0.0% 0.2% 3.7% 7.8%

Total 100% 100% 100% 100% 100%

Revenues - by region (S$ m)

Singapore 72.4 85.4 94.7 103.3 110.5

Malaysia 19.6 24.6 28.4 33.2 38.5

HK/China 10.2 33.9 40.9 48.7 58.5

Thailand 6.7 8.8 10.8 20.0 33.4

Indonesia 6.3 5.3 5.6 6.5 7.6

Latin America 2.0 2.5 3.0 3.6 4.4

Others 2.9 2.6 2.7 4.1 6.2

120.1 163.0 186.2 219.4 259.0

Thai wheel plant

# of production lines 1 2

# of alloy wheels (m) - capacity 0.20 0.48

utilisation rate 48% 50%

Revenues (S$ m) - wheel production 8.1 20.3

Revenues (S$ m) - distribution 11.9 13.1

Source: Company data, ABN AMRO estimates

Table 2 : Target price sensitivity table

No of Years in Fade Period

WACC 15 18 20 23 25

6.0% 1.60 1.66 1.72 1.79 1.85

7.0% 1.29 1.33 1.37 1.41 1.46

8.0% 1.06 1.09 1.12 1.14 1.17

9.0% 0.89 0.91 0.93 0.95 0.96

10.0% 0.76 0.77 0.78 0.79 0.80


Contents


I N D U S T R Y D Y N A M I C S

Solid prospects in Asian tyre industry 5

Asia’s tyre industry has significantly outpaced the growth rates in developed countries. With a rapidly growing car population and low vehicle penetration rates, we expect the long-term outlook to remain strong.

Stamford Tyres’ Asian prospects look strong 8

I N V E S T M E N T V I E W

China and Thailand raise prospects 10

Positioned in two of the fastest-growing tyre markets in Asia with its JV to distribute Dunlop tyres and its sports alloy rims manufacturing business, Stamford Tyres is set to benefit from increased demand for auto...

China 10

Thailand 12

Net income CAGR of 33% 13

Healthy regional GDP growth rates, higher consumption spending and deeper market penetration are expected to boost net income by a three-year CAGR of 33% and EBIT margins from 7.7% in FY03 to 11.2% in FY06F.

V A L U A T I O N C O M M E N T

Accelerating returns and attractive valuations 14

At 0.4x PEG and 9x PER, and with accelerating returns, Stamford Tyres looks attractive at current levels. Our 12-month target price of S$1.05 (potential 51% upside) is derived from a three-stage DCF valuation.

C O M P A N Y O U T L I N E

Background 16



Solid prospects in Asian tyre industry

Asia’s tyre industry has significantly outpaced the growth rates in developed

countries. With a rapidly growing car population and low vehicle penetration

rates, we expect the long-term outlook to remain strong.

Rapid vehicle population growth in Asia

The vehicle population in Asia has been growing rapidly over the past four years,

outpacing developed countries by a factor of four. This rapid growth comes on the

back of a low base, the improved economic outlook and increased consumer

spending. Within Asia, countries with the greatest growth rates include China (11.7%

CAGR from 1998-2002), Korea (7.4%), Malaysia (8.6%) and Thailand (6.0%) (see

chart 1).

Chart 1 : Vehicle population growth rate (1998-2002)

1.0% 1.0% 1.1%1.6%

2.5%

3.9%4.6%

6.0%

7.4%

8.6%

11.7%

0%

2%

4%

6%

8%

10%

12%

14%

Hong K

ong

Sin

gapore

Japan

US

NZ

W E

uro

pe

Indones

ia

Thaila

nd

Kore

a

Mala

ysia

Chin

a

Source: CEIC

The aforementioned countries also possess the largest vehicle populations within the

region, suggesting a healthy market base and good long-term growth potential for

vehicle parts suppliers. As at 2002, China’s vehicle population stood at 20.5m, while

Korea, Malaysia and Thailand had populations of 13.9m, 6.5m and 7.1m,

respectively.

Vehicle population growth in Asia has been outpacing developed countries by a factor of four

A healthy market base and good long-term growth potential for vehicle parts suppliers



Table 3 : Global vehicle population

2002 vehicle population

Singapore 0.6

Hong Kong 0.6

NZ 2.4

Indonesia 6.0

Malaysia 6.5

Thailand 7.1

Australia 12.8

Korea 13.9

China 20.5

Japan 76.3

W Europe 205.9

US 225.7

Source: Bloomberg Consensus, CEIC, Australian Bureau of Statistics, SingStats, Ministry of Transport (Japan), Japan Automobile Manufacturers Assosciation (JAMA), Quarterly Labour Force Statistics, OECD, Association Auxilliaire de l'Automobile (ACEA)

Low vehicle penetration rates suggest attractive prospects

Furthermore, the current Asian vehicle penetration rate (vehicle per population) – at

1-3% for China and Indonesia, 8-14% for Hong Kong, Thailand and Singapore and

28-30% for Malaysia and Korea – is much lower than in developed countries at 60-

80%, suggesting significant long-term growth potential for vehicle ownership as

Asian economies develop (see chart 2). This would imply that vehicle parts suppliers

would also likely experience healthy growth in the region. China, with a vehicle

penetration rate of only 1.6% and a robust economy, provides the greatest growth

potential within the region, in our view.

Chart 2 : Low vehicle penetration rates vs developed countries

1.6% 2.6%8.1%

11.2% 13.7%

28.9% 29.3%

39.3%

60.0% 60.0%65.0%

78.3%

0%

50%

100%

Chin

a

Indones

ia

Hong K

ong

Thaila

nd

Sin

gapore

Mala

ysia

Kore

a

W E

uro

pe

Japan

NZ

Aust

ralia US

Source: Bloomberg Consensus, CEIC, Australian Bureau of Statistics, SingStats, Ministry of Transport (Japan), Japan Automobile Manufacturers Assosciation (JAMA), Quarterly Labour Force Statistics, OECD, Association Auxilliaire de l'Automobile (ACEA)

Tyre sales in Asia outpace developed countries

Accordingly, tyre sales in Asia have outpaced the growth rates in developed

countries. As shown in chart 3, China, the Asean (Association of Southeast Asian

Nations) area and South Korea have registered tyre sales growth rates of 9-13% vs

1-2% in developed countries. We expect the rapid growth in Asia to continue as

consumer spending power increases and economies expand further.

China, with a vehicle penetration rate of only 1.6%, provides the greatest growth potential within the region.

China, Asean and South Korea have registered tyre sales growth rates ranging from 9-13% vs 1-2% in developed countries



Chart 3 : Global tyre sales by country and region (1998-2002 CAGR)

0.0%1.0% 1.2%

1.9%

3.1%

5.3%

7.4%

9.6%

11.1%

12.5%

0%

2%

4%

6%

8%

10%

12%

14%M

erco

sur

Nort

hAm

eri

ca

West

ern

Euro

pe

Japan

RO

W

East

ern

Euro

pe

India

Chin

a

Ase

an

South

Kore

a

Source: LMC

Replacement tyre market is also strong in Asia

Similarly, the replacement market for tyres in Asia has also expanded faster than in

developed countries (see chart 4). This comes on the back of a rapidly growing

vehicle population and healthy economic conditions in the region (see table 4). Going

forward, we expect the replacement tyre market to continue growing rapidly as

increased affluence and a larger vehicle population raise demand.

Chart 4 : Global replacement tyre sales (1998-2002 CAGR)

0.3%

1.3% 1.6%

3.3%

5.7% 5.7%6.5%

7.7%

8.9%

10.8%

0%

2%

4%

6%

8%

10%

12%

Mer

cosu

r

Nort

hAm

eri

ca

West

ern

Euro

pe

RO

W

Japan

East

ern

Euro

pe

India

Chin

a

Ase

an

South

Kore

a

Source: LMC

Table 4 : GDP growth forecast (%)

1996A 1997A 1998A 1999A 2000A 2001A 2002A 2003F 2004F 2005F

Thailand 5.9 -1.4 -10.5 4.4 4.6 1.9 5.3 6.3 6.2 5.0

Taiwan 6.1 6.7 4.6 5.4 5.9 (2.2) 3.6 2.6 4.6 4.2

China 9.6 8.8 7.8 7.1 8 7.3 8.0 9.1 7.5 7.0

HK 4.1 5.1 -5.4 3 9.3 0.5 2.3 2.5 7.0 5.0

Msia 10 7.3 -7.4 6.1 8.3 0.3 4.1 5.1 6.5 5.0

Singapore 8.1 8.5 -0.9 6.4 9.4 (2.4) 2.2 0.5 6.3 4.2

Indonesia 7.8 4.7 -13.1 0.8 4.9 3.4 3.7 4.0 4.4 4.1

Australia 3.9 4.4 5.7 4.7 3.8 1.8 3.8 2.7 3.1 n.a.

New Zealand 4.6 0.3 0.4 4.9 2 2.6 4.4 2.8 2.3 2.5

Source: ABN AMRO ESTIMATES

The replacement market for tyres in Asia has also expanded faster than in developed countries



Stamford Tyres’ Asian prospects look strong

Deeper market penetration in Asia

Having established its presence in Southeast Asia, Stamford Tyres is expanding its

distribution networks in Australia, South Korea and China. On the back of rising

affluence, we expect demand for cars to increase, allowing the group to take

advantage of the growth in these countries through its brands. Firenza, Stamford

Tyres’ proprietary brand of high-performance passenger car tyres made in Japan,

currently enjoys good acceptance by end-users. To further increase market

penetration, a new line of Firenza tyres manufactured in Indonesia was introduced

recently. The group will also introduce tyres manufactured in Malaysia by Continental

Sime Tyre. These new tyre lines will enjoy the preferential AFTA tariff rate of 5% and

are expected to enhance the group's turnover within the ASEAN region.

Table 5 : Revenue breakdown (by region)

YE – April 2000 2001 2002 2003 2004F 2005F 2006F

Revenues (S$ mn)

Singapore 78.8 76.7 72.4 85.4 94.7 103.3 110.5

Malaysia 13.3 15.3 19.6 24.6 28.4 33.2 38.5

HK/China 6.2 9.1 10.2 33.9 40.9 48.7 58.5

Thailand 6.3 6.9 6.7 8.8 10.8 20.0 33.4

Indonesia 0.0 0.0 6.3 5.3 5.6 6.5 7.6

Latin America 9.2 7.3 2.0 2.5 3.0 3.6 4.4

Others 0.0 3.7 2.9 2.6 2.7 4.1 6.2

113.8 119.1 120.1 163.0 186.2 219.4 259.0

Revenues (% of total)

Singapore 66% 64% 60% 52% 51% 47% 43%

Malaysia 11% 13% 16% 15% 15% 15% 15%

HK/China 5% 8% 8% 21% 22% 22% 23%

Thailand 5% 6% 6% 5% 6% 9% 13%

Indonesia 0% 0% 5% 3% 3% 3% 3%

Latin America 8% 6% 2% 2% 2% 2% 2%

Others 0% 3% 2% 2% 1% 2% 2%

100% 100% 100% 100% 100% 100% 100%


Some of the top brands represented in the industry

With an operating history spanning several decades, Stamford Tyres has built up a

strong reputation and comprehensive family of vendors that it represents. The

company’s main brands Falken (under Sumitomo), Dunlop (under Sumitomo),

Continental and Toyo are major names with large customer bases. As shown in chart

5, in the US$69 bn market for tyres globally, Toyo, Sumitomo and Continental hold

2%, 4% and 7% market shares, respectively. Catering to the niche market of high-

end performance tyres with these major brands, we believe Stamford is in a strong

position as it expands further in Asia.

Table 6 : Brands represented under Stamford Tyres

Major brands represented

Falken, Continental, Toyo Tires, Firenza, Sumo Tire, Stamford Wheels

Dunlop (through TPHK; exclusive for China through SRITP)

Other brands represented (wheels and auto accessories)

Ray Wheels, Gram Lights, SSR, United Arrows, Versus, Yolk, Momo, Alessio, TSW, Hamann

BBS, Projec U, Tanabe, Fiamm, General tyres, Arnco, Regal tyres, 5 Zigen

Source: Stamford Tyres

Expanding its distribution networks in Australia, South Korea and China

Strong reputation and comprehensive family of vendors represented



Chart 5 : Global tyre companies – Market share, 2002

Goodyear18%

Michelin20%

Bridgestone20%

Others18%

Continental7%

Sumitomo Rubber4%

Hankook1%

Cooper3% Pirelli

4%

Yokohama3%

Toyo2%

Source: LMC



China and Thailand raise prospects

Positioned in two of the fastest-growing tyre markets in Asia with its JV to

distribute Dunlop tyres and its sports alloy rims manufacturing business,

Stamford Tyres is set to benefit from increased demand for auto parts.

China

JV with Sumitomo to distribute Dunlop tyres in China

Tyre Pacific HK Ltd (TPHK) – a 50:50 joint venture between Stamford Tyres and Tan

Chong International – has formed a joint venture with Sumitomo Rubber Industries

Co. Ltd (SRI) and set up a joint venture holding company, SRITP Ltd, as the sole

distributor of Dunlop tyres manufactured in China. SRITP is 60% owned by Sumitomo

with TPHK owning 40%. SRI’s factory in Changsu, Jiangsu province, will produce

passenger car radials from 1Q04 and will eventually have a capacity of more than 3m

tyres annually.

Chart 6 : Organisational chart

Stamford Tyres50%

Tan Chong International50%

Tyre Pacific (TP)40%

Sumitomo Rubber Industries (SRI)

60%

SRI- TP JV Co Ltd(Sole distributor of Dunlop

Tyres manufactured in China)

Source: Company data

With a plan to operate a chain of 400 outlets in two years, SRITP will be in an

investment phase. As such, we believe this JV will not have much of an earnings

impact on Stamford Tyres for the next two to three years. However, with SRI

targeting a 10% market share in the domestic Chinese tyre market by 2010, we

believe Stamford Tyres’ position and long-term prospects are strong. SRITP is

expected to produce 5,000 pieces/day by end-2004 and 10,000/day by end-2006.

TPHK is currently the distributor of Dunlop tyres in Hong Kong, Macau, Vietnam and

China. With the incorporation of SRITP, TPHK will remain the prime distributor for

imported Dunlop tyres in China, Hong Kong, Macau, and Vietnam, while the

distribution of ‘China-made’ Dunlop tyres for China will be handled by SRITP.

SRITP is the sole distributor of Dunlop tyres manufactured in China

SRITP to contribute over the longer term



Chart 7 : China with SRITP’s reach

Source: Company data

Excellent prospects for auto-parts suppliers in China

Longer term, the prospects for auto-parts suppliers in China are good with the rapidly

growing vehicle population and increasing private car ownership. The Development

Research Centre of China Cabinet has forecast a 17% vehicle population CAGR in

China for the next ten years, reaching a population of 100m vehicles from 20.5m as

at 2002.

With growing affluence and greater purchasing power, more private individuals in

China own vehicles. A study by the China National Statistics Bureau (CNSB) indicates

that about 20% of city residents currently have the financial means to purchase a

family car and the accelerating private vehicle ownership in China comes on the back

of robust economic growth. From 1992 to 1999, private car ownership in China

increased from 1m to 5m, but it took only three years after 1999 for the private car

population to expand from 5m to 10m.

Vehicle population growth CAGR of 17% for the next ten years

More private individuals in China are owning vehicles



Thailand

Thai wheel manufacturing plant

Construction of Stamford Tyres’ Thai wheel manufacturing plant commenced in

October 2003 and production is expected to begin in May 2004. Manufacturing

“Stamford Sports Wheels” (SSW), the company has teamed up with the Singapore

Institute of Manufacturing Technology (SIMTech), a research institute of the Agency

for Science, Technology and Research (A*STAR), to draw upon its knowledge in

advanced metal-forming technologies. The Thai factory will target new product lines

in Asean and North America, focusing on the niche high-end replacement market

segment. Stamford Tyres plans for quick product development and market

introduction, benchmarking its wheel quality to the Japanese standard.

With a planned production capacity of 480,000 wheels by FY06 (two production

lines), we expect manufacturing revenues in Thailand to surge from S$8m in FY05F

to S$20m in FY06F (accounting for about 8% of group revenues). Together with

Stamford Tyres’ existing distribution business in Thailand, the group’s Thai revenues

are expected to surge about four times, from S$8.8m in FY03 to S$33.4m by FY06F.

Thai factory will target new product lines, focusing on the niche high-end replacement market segment

Thai revenues are expected to surge about four times from S$8.8m in FY03 to S$33.4m by FY06F



Net income CAGR of 33%

Healthy regional GDP growth rates, higher consumption spending and

deeper market penetration are expected to boost net income by a three-year

CAGR of 33% and EBIT margins from 7.7% in FY03 to 11.2% in FY06F.

EBIT margins and ROIC to expand

Apart from healthy regional GDP growth rates and higher consumption, Stamford

Tyres’ new Thai wheel manufacturing operations, deeper market penetration of its

distribution network in Asia and greater operational efficiencies and leverage are

expected to boost group net income by a three-year CAGR of 33% while EBIT

margins rise from 7.7% in FY03 to 11.2% in FY06F. Consequently, ROIC is set to rise

strongly, as profit growth should be largely margin-driven, with ROIC increasing from

12.9% in FY03 to 22.4% in FY06F (see chart 8). Margins, in particular, are expected

to increase at a healthy rate due to the group’s high fixed-cost component, which

should allow the group to benefit from operational leverage as revenues increase.

Chart 8 : EBIT and ROIC chart

7.1% 7.7%8.8%

10.2%11.2%

5.6%

12.9%

17.7%

20.4%

22.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

FY02 FY03 FY04F FY05F FY06F

EBIT margins ROIC


FCF yield to rise, suggesting potential for increased dividends

Stamford Tyres’ FCF yield is forecast to rise from the current 3.2% to 5.4% by FY06F,

while the group’s net debt is expected to decline from 56% in FY03 to 18% by FY06F.

With future capex requirements manageable, we believe this implies greater upside

risk to our dividend assumptions and room for payout to rise. At current prices, with

our existing conservative assumption of a 20% payout ratio (versus the five-year

historical average of 37%), Stamford Tyres’ dividend yields are expected to range

between 2% and 3% over the next three years.

Net income up at a three-year CAGR of 33%. EBIT margins up from 7.7% in FY03 to 11.2% in FY06F

Greater upside risk to our dividend assumptions and room for payout to rise



Accelerating returns and attractive valuations

At 0.4x PEG and 9x PER, and with accelerating returns, Stamford Tyres looks

attractive at current levels. Our 12-month target price of S$1.05 (potential

51% upside) is derived from a three-stage DCF valuation.

Accelerating returns and attractive valuations

Robust industry dynamics and effective business execution have delivered impressive

operational growth for Stamford Tyres and are likely to continue improving returns

for the group going forward. Currently trading at attractive valuations, we believe

Stamford Tyres presents a compelling investment case. Utilising several different

returns and valuation parameters, our analysis suggests strong fundamentals for the

group and an attractive investment entry level.

■ Sharp increase in value creation. Stamford Tyres’ ROIC is set to accelerate

rapidly, rising from 12.9% in FY03 to 22.4% by FY06F. This comes on the back of

margin expansion and healthy revenue growth. ROE is also expected to continue

improving from 17.8% in FY03 to 23.4% in FY06F.

■ Implied price to book. With a theoretical P/B multiple of 2.7x (derived from an

attainable ROE of 20%, cost of equity of 10% and LT growth rate of 4%),

Stamford Tyres’ current P/B of 2.2x appears attractive.

Note: P/BV = (ROE-g)/(COE-g). See table 7 for sensitivity.

■ Implied EV/IC. At our theoretical EV/IC multiple of 3.2x (derived from an

attainable ROIC of 20%, WACC of 9% and growth rate of 4%), Stamford Tyres’

current EV/IC of 1.9x also appears attractive.

Note: EV/IC = (ROIC-g)/(WACC-g). See table 8 for sensitivity.

■ Margins. EBIT margins are expected to increase from 7.7% in FY03 to 11.2% in

FY06F on the back of greater operational efficiencies.

■ PEG. With an FY05F (Apr YE) PER of 9x and a three-year earnings CAGR of

22.3%, Stamford Tyres’ PEG of 0.4x appears attractive.

Table 7 : Sensitivity table on theoretical price to book

Cost of Equity

6% 8% 10% 12% 14%

2% 4.5 3.0 2.3 1.8 1.5

3% 5.7 3.4 2.4 1.9 1.5

Growth 4% 8.0 4.0 2.7 2.0 1.6

5% 15.0 5.0 3.0 2.1 1.7

6% n.m. 7.0 3.5 2.3 1.8


Our analysis suggests strong fundamentals for the group and an attractive investment entry level



Table 8 : Sensitivity table on theoretical EV/IC

WACC

7% 8% 9% 10% 11%

2% 3.6 3.0 2.6 2.3 2.0

3% 4.3 3.4 2.8 2.4 2.1

Growth 4% 5.3 4.0 3.2 2.7 2.3

5% 7.5 5.0 3.8 3.0 2.5

6% 14.0 7.0 4.7 3.5 2.8


Target price of S$1.05 from our three-stage DCF valuation

Our 12-month target price of S$1.05 is derived from a three-stage DCF valuation and

assumes operating margins will decline from 9-11% over 2004-10 to 8.0-8.5%

during the value expansion period of 2011-20. Financial returns are then expected to

fade over five years (2021-25) until they equal the company’s WACC (9%), as

supernormal returns are competed away over the long term. At our target price,

Stamford Tyres would trade at an FY05F PER of 13.7x and EV/EBITDA of 8.8x. In

terms of peer comparison at our target, its FY05F PER of 13.7x would still be below

its closest competitor YHI International (YHI SP, Not rated), which is currently trading

at a forward PER of 16.1x (based on consensus forecasts).

Chart 9 : Returns, cost of capital and NPV of free cash flow

0%

5%

10%

15%

20%

25%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

0

1

2

3

4

5

6

7

8

9

10

Phase 1 NPV of FCF (RHS) Phase 2 NPV of FCF (RHS) Phase 3 NPV of FCF (RHS)

Total Business ROIC Growth Business ROIC Remaining Business ROIC

WACC


Our 12-month target price of S$1.05 (51% upside potential) is derived from a three-stage DCF valuation



Background

Stamford Tyres is a regional distributor of a complete range of tyres and wheels with

supporting services. The business operates an international distribution network

providing a complete range of tyres and wheels with supporting services to tyre and

wheel distributors and retailers in more than 30 countries in Asia Pacific, Africa and

Latin America.

It conducts its worldwide operations from its headquarters in Singapore. The modern

facilities include an 18,000 sqm warehouse, a 3,000 sqm automotive Mega Mart and

a 1,800 sqm corporate head office.

History

Started as a tyre service shop over 70 years ago, the company was founded by the

late Wee Boon Kew, father of current president Wee Kok Wah, during the 1930s as a

tyre retail and petrol service station operator in Singapore. The business was located

on Stamford Road, hence its name.

In 1940s, a tyre retreading plant was established to provide additional services for

the British army and help grow the business. In the 1970s, Wee Kok Wah joined the

business. To expand the scope of the business, he established a new tyre distribution

operation. With this expansion, larger premises were needed and the company

moved to its present location in Singapore’s Jurong Industrial Estate.

In 1991, the business was incorporated and listed on SESDAQ. Rapid expansion as

the company extended its reach into the region and beyond. In April 2003, the

company was upgraded to the main board of the SGX.

Business activities

Stamford Tyres distributes tyres, wheels and tyre-related products in regional

markets. It also operates five Mega Marts in Singapore and one in Kuala Lumpur,

Malaysia. Each Mega Mart offers a comprehensive range of tyres, wheels, auto

accessories and services for all brands of cars. In addition, the company has four tyre

marts in Singapore and two in Malaysia, as well as five tyre workshops with major car

distributors in Singapore that provide tyres and services.

With more than 20 years in the OTR business, Stamford Tyres is well known

regionally, especially in Indonesia. Services and advice are provided to port

authorities and mining, logging and construction companies.

Some of the services provided by the company include value-added fleet tyre

management and maintenance services to vehicle fleet owners like the supply and

lease of tyres, such as the tyre leasing program to mining operators PT Inco and

long-term contracts with customers such as PSA, Sembwaste and Colex.

The company has retreading operations in Singapore, Malaysia and Indonesia. It is

currently expanding into the wheel manufacturing business with a new wheel

manufacturing plant in Thailand.



Brands represented

Stamford Tyres carries Falken Tires (a major brand owned by Sumitomo Rubber

Industries in Japan). It is distributed in Southeast Asia, North Asia, India, South

Africa, Mauritius, Reunion Island and the Pacific islands. New markets are Central

America, South America and the Carribean. Through Tyre Pacific, it distributes

Dunlop (a major brand owned by SRI) in Hong Kong, Macau, China and Vietnam.

Continental AG (high-tech German tyre manufacturer) is also distributed by Stamford

tyres in Singapore, Malaysia, Thailand, Brunei and Indonesia. The company also

distributes OTR as well as truck and bus radials for Toyo. Stamford Tyres distributes

Toyo in Singapore, Malaysia, Thailand, Brunei and Indonesia.

The Stamford tyres proprietary brand is Firenza. It is contract manufactured in Japan

by Sumitomo Rubber Industries Ltd, utilising the latest tyre research and technology.

The Firenza line is presently being extended to new lines. It is distributed worldwide

except in Western Europe and the USA.

Another proprietary brand is Sumo Tire, which is manufactured according to TRA

standards and is well distributed around the world. It is made by Henan Tyre co. Ltd

in China, Ceat Ltd in India and Otani Tyre Co. Ltd in Thailand.

SSW (Stamford Sports Wheels) is the company’s proprietary brand of alloy wheels.

They are manufactured in-house in their wheel plant in Thailand. Other Japanese

wheels distributed by Stamford tyres are RAYS, Gram lights, SSR, United Arrows

(UA), 5 Zigen, Yolk and Versus. European brands include Momo, Alessio, TSW,

Hamann and BBS.

Tanabe, Project U, Momo are some high performance car tuning parts from Japan

and Italy that are distributed by Stamford Tyres. Industrial products such as Fiamm

Batteries, Yokohama conveyer belting and Arnco Industrial Tyrefill are also

distributed by the company.

CEO background

Mr Wee Kok Wah has been the group’s president since 1989. He has more than 30

years of experience in the tyre business. He joined Stamford Tyres as a marketing

executive in 1970 after graduating with a Bachelor of Social Science degree, majoring

in Economics and Law, from the University of Singapore.




DISCLOSURES

Recommendation structure

For stocks, such as this one, which do not fit neatly into a sector paradigm we show a target price and an absolute recommendation based on the impliedupside/downside. A Buy/Sell requires upside/downside of 15% or more; an Add/Reduce requires upside/downside of between 5% and 15%; a Hold implies less than 5% upside/downside. Given the volatility of share prices and our predisposition not to change recommendations frequently, these performance parametersshould be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 6 to 12 months.

The target price is the level the stock should currently trade at if the market accepted the analyst's view of the stock, provided that the necessary catalysts are inplace to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on themarket or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value the target price will differ from 'fair' value.

For large-cap stocks where there is a clearly defined, broadly-based sector universe our primary recommendation is relative to the sector universe.

Stock performance, recommendation history and analyst coverage (as at 25 Feb 2004) Stamford Tyres Corp

Distribution of recommendations

The table opposite shows the distribution of ABN AMRO's recommendations.The first column displays the distribution of recommendations globally andthe second column shows the distribution for the region. Numbers inbrackets show the percentage for each category where ABN AMRO has aninvestment banking relationship. In all cases the numbers include bothabsolute and sector relative recommendations.

Recommendation distribution (as at 25 Feb 2004)

Global total (IB%) Asia / Pacific total

(IB%)

Buy 410 (25) 206 (6)

Add 381 (23) 153 (5)

Hold 364 (19) 173 (5)

Reduce 192 (15) 51 (8)

Sell 68 (21) 29 (0)

Total (IB%) 1415 (21) 612 (5)


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Regulatory disclosures

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Mentioned companies: STAS.SI, 1114.HK, 0203.HK

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Stamford Tyres Corp: KEY FINANCIAL DATA

Income statement

S$m FY02A FY03A FY04F FY05F FY06F

Revenue 120.1 163.0 186.2 219.4 259.0

Cost of Sales -88.2 -123.0 -136.9 -162.3 -192.9

Operating Costs -20.0 -24.6 -29.6 -31.3 -33.2

EBITDA 11.8 15.4 19.7 25.8 32.8

DD&A (Ex GW) -3.31 -2.87 -3.28 -3.50 -3.79

EBITA 8.49 12.5 16.5 22.3 29.0

Goodwill Amort (Pre-EBIT) n/a n/a n/a n/a n/a

EBIT 8.49 12.5 16.5 22.3 29.0

Net Interest -4.37 -2.88 -2.88 -2.88 -2.88

Associates (Pre-Tax) 1.07 0.00 0.00 0.00 0.00

Exceptionals (Pre-Tax) n/a n/a n/a n/a n/a

Other Pre-Tax Items 0.00 0.00 0.00 0.00 0.00

Reported PTP 5.19 9.65 13.6 19.4 26.1

Taxation -2.43 -1.46 -2.17 -4.27 -6.79

Minority Interests 0.01 -0.01 -0.01 -0.02 -0.02

Exceptionals (Post-Tax) n/a n/a n/a n/a n/a

Other Post-Tax Items 0.00 0.00 0.00 0.00 0.00

Reported Net Profit 2.76 8.18 11.4 15.1 19.3

Exceptionals (Total) 0.00 0.00 0.00 0.00 0.00

Normalised Net Profit 2.76 8.18 11.4 15.1 19.3

Source: Company data, ABN AMRO estimates year to Apr

Balance sheet


Cash and Liq Assets (1) 3.74 11.4 17.4 19.2 22.8

Other Current Assets 83.0 92.6 105.2 123.3 144.9

Tangible Fixed Assets 36.3 40.4 42.2 45.7 49.4

Intang Assets (Incl GW) 0.31 0.31 0.31 0.31 0.31

Oth Non-Curr Assets 9.23 0.72 0.72 0.71 0.72

Total Assets 132.6 145.3 165.8 189.2 218.2

Short Term Debt (2) 6.27 3.77 3.77 3.77 3.77

Trade & Oth Current Liab 46.4 55.9 63.1 74.4 87.9

Long Term Debt (3) 35.5 34.9 34.9 34.9 34.9

Oth Non-Current Liab 1.61 1.29 1.29 1.29 1.29

Total Liabilities 89.8 95.9 103.0 114.3 127.8

Total Equity (Incl Min) 42.9 49.4 62.7 74.9 90.3

Total Liab & Sh Equity 132.6 145.3 165.8 189.2 218.2

Net Debt (2+3-1) 38.4 27.7 21.7 19.9 16.3

Source: Company data, ABN AMRO estimates year ended Apr

Cash flow statement


EBITDA 11.8 15.4 19.7 25.8 32.8

Change in Working Capital -1.86 0.41 -6.23 -8.90 -10.6

Net Interest (Pd) / Rec -4.37 -2.88 -2.88 -2.88 -2.88

Taxes Paid -1.17 -2.12 -1.46 -2.17 -4.27

Other Oper Cash Items 1.07 0.00 0.00 0.00 0.00

Cash Flow from Ops (1) 5.46 10.8 9.18 11.8 15.0

Capex (2) -2.78 -2.85 -5.09 -6.99 -7.57

Other Investing Cash Flow -1.13 -1.17 -2.28 -3.02 -3.86

Disposals/(Acquisitions) 0.65 0.35 0.00 0.00 0.00

Cash Flow from Invest (3) -3.26 -3.67 -7.37 -10.0 -11.4

Incr / (Decr) in Equity 0.81 3.23 4.18 0.00 0.00

Incr / (Decr) in Debt 0.00 0.00 0.00 0.00 0.00

Ordinary Dividend Paid n/a n/a n/a n/a n/a

Preferred Dividends (4) n/a n/a n/a n/a n/a

Other Financing Cash Flow n/a n/a n/a n/a n/a

Cash Flow from Fin (5) 0.81 3.23 4.18 0.00 0.00

Forex & Disc Ops (6) n/a n/a n/a n/a n/a

Inc/(Decr) Cash (1+3+5+6) 3.02 10.4 5.98 1.81 3.59

Equity FCF (1+2+4) 2.69 7.97 4.09 4.83 7.45

Source: Company data, ABN AMRO estimates. Lines in bold can be derived from the immediately preceding lines year to Apr


Stamford Tyres Corp: PERFORMANCE AND VALUATION

Standard ratios Stamford Tyres Brilliance China Automotive Denway Motors

Performance FY02A FY03A FY04F FY05F FY06F FY03F FY04F FY05F FY03F FY04F FY05F

Sales Growth (%) 0.82 35.8 14.2 17.8 18.0 37.0 7.88 4.30 11.8 12.0 12.2

EBITDA Growth (%) 33.4 30.4 28.2 30.6 27.2 80.0 -0.34 7.07 50.7 4.64 3.38

EBIT Growth (%) 37.7 47.5 31.3 35.4 30.2 59.4 1.43 4.66 108.8 1.70 -0.02

Normalised EPS Growth (%) 4.32 190.8 16.7 22.6 27.8 52.6 22.7 10.4 46.2 28.1 11.7

EBITDA Margin (%) 9.84 9.44 10.6 11.7 12.7 21.8 20.2 20.7 2.59 2.42 2.23

EBIT Margin (%) 7.08 7.69 8.84 10.2 11.2 14.6 13.7 13.8 1.65 1.50 1.34

Net Profit Margin (%) 2.30 5.02 6.12 6.89 7.46 9.90 11.8 13.1 103.4 122.9 122.3

Return on Avg Assets (%) 3.83 7.65 8.88 9.79 10.5 8.18 8.40 8.65 36.4 35.8 30.5

Return on Avg Equity (%) 6.74 17.8 20.4 22.0 23.4 15.3 15.3 14.1 40.3 38.9 32.7

ROIC (%) 5.63 12.9 17.7 20.4 22.4 23.5 20.0 20.5 75.6 64.2 49.1

ROIC - WACC (%) -3.63 3.63 8.45 11.1 13.2 9.52 6.06 6.49 65.3 53.9 38.9

year to Apr year to Dec year to Dec

Valuation

EV/Sales (x) 1.46 1.01 0.85 0.72 0.59 1.52 1.25 1.13 17.6 16.0 14.4

EV/EBITDA (x) 14.9 10.7 8.05 6.10 4.68 6.99 6.20 5.44 680.4 658.9 646.7

EV/EBITDA @ Tgt Price (x) 20.8 15.3 11.6 8.82 6.82 9.15 8.37 7.47 818.7 791.1 774.5

EV/EBIT (x) 20.7 13.2 9.66 7.05 5.29 10.4 9.10 8.17 1066.4 1062.6 1078.3

EV/Invested Capital (x) 2.13 2.11 1.86 1.64 1.43 2.15 1.84 1.74 7.55 4.84 3.50

Price/Book Value (x) 2.44 2.16 2.19 1.84 1.52 2.14 1.66 1.46 6.65 4.85 3.74

Equity FCF Yield (%) 2.57 7.50 3.22 3.52 5.43 3.20 3.77 7.05 1.05 0.17 0.32

Normalised PE (x) 37.8 13.0 11.1 9.08 7.10 14.9 12.2 11.0 18.5 14.4 12.9

Norm PE @Tgt Price (x) 57.1 19.6 16.8 13.7 10.7 19.7 16.0 14.5 22.1 17.2 15.4

Dividend Yield (%) 1.12 1.12 1.80 2.20 2.82 0.47 0.58 0.64 1.19 1.53 1.70

year to Apr year to Dec year to Dec

Per share data FY02A FY03A FY04F FY05F FY06F Solvency FY02A FY03A FY04F FY05F FY06F

Tot Adj Dil Sh, Ave (m) 150.1 153.0 182.4 197.5 197.5 Net Debt to Equity (%) 89.4 56.0 34.6 26.6 18.1

Reported EPS (SGD) 0.02 0.05 0.06 0.08 0.10 Net Debt to Tot Ass (%) 28.9 19.1 13.1 10.5 7.48

Normalised EPS (SGD) 0.02 0.05 0.06 0.08 0.10 Net Debt to EBITDA (%) 324.8 179.9 110.0 77.2 49.8

Dividend Per Share (SGD) 0.01 0.01 0.01 0.02 0.02 Current Ratio (x) 1.65 1.74 1.83 1.82 1.83

Equity FCF Per Share (SGD) 0.02 0.05 0.02 0.02 0.04 Operating CF Int Cov (x) 2.52 5.50 4.70 5.87 7.71

Book Value Per Sh (SGD) 0.28 0.32 0.32 0.38 0.46 Dividend Cover (x) 2.36 6.86 5.00 5.00 5.00

year to Apr year to Apr

3-stage DCF valuation Economic Profit Valuation US$ m % Discounted Cash Flow Valuation US$ m %

Adjusted Opening Invested Capital 86.6 38 Value of Phase 1: Explicit (2003 to 2009) 52.7 23

NPV of Economic Profit During Explicit Period 68.4 30 Value of Phase 2: Value Driver (2010 to 2017) 64.8 28

NPV of Econ Profit of Remaining Business (1, 2) 47.4 21 Value of Phase 3: Fade (2018 to 2032) 25.3 11

NPV of Econ Profit of Net Inv (Grth Business) (1, 3) 26.1 11 Terminal Value 85.7 38

Enterprise Value 228.6 100 Enterprise Value 228.5 100

Plus: Other Assets 0.0 0 FCF Grth Rate at end of Phs 1 implied by DCF Valuation 5

Less: Minorities 0.0 0 FCF Grth Rate at end of Phs 1 implied by Current Price 2

Less: Net Debt (as at 19 Dec 2003) 21.3 9

Equity Value 207.3 91

No. Shares (millions) 197.5

Per Share Equity Value 1.05

Current Share Price 0.69

Sensitivity Table

#REF! 15 18 20 23 25

6.0% 1.60 1.66 1.72 1.79 1.85

7.0% 1.29 1.33 1.37 1.41 1.46

8.0% 1.06 1.09 1.12 1.14 1.17

9.0% 0.89 0.91 0.93 0.95 0.96

10.0% 0.76 0.77 0.78 0.79 0.80

Performance Summary Phase 2 Avg

2003 2004 2005

Invested Capital Growth (%) 9.4 12.1 12.4 9.0

Operating Margin (%) 8.8 10.2 11.2 8.6

Capital Turnover (x) 2.4 2.6 2.7 2.5

No of Years in Fade Period

Returns, WACC and NPV of Free Cash Flow

(2010 - 2017)

WA

CC

0%

5%

10%

15%

20%

25%

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

0

1

2

3

4

5

6

7

8

9

10

Phase 1 NPV of FCF (RHS) Phase 2 NPV of FCF (RHS)

Phase 3 NPV of FCF (RHS) Total Business ROIC

Growth Business ROIC Remaining Business ROIC

WACC


1. In periods following the Explicit Period i.e. Phase 2 and Phase 3

2. Remaining Business is defined as Capital as at the end of Phase 1 and capex = depreciation thereafter

3. Net Investment is defined as capex over and above depreciation after Phase 1


Strategic analysis Average SWOT company score: 4 Revenue breakdown, FY03

Stamford Tyres Corp

Company description Buy Price relative to country

Stamford Tyres is a regional distributor of a complete range of tyres and wheels with supporting services. The business operates an international distribution network providing a complete range oftyres and wheels with supporting services to tyre and wheel distributors and retailers in more than30 countries in Asia Pacific, Africa and Latin America. Stamford Tyres operates five Mega Marts inSingapore and one in Kuala Lumpur, Malaysia. Each Mega Mart offers a comprehensive range oftyres, wheels, auto accessories and services for all brands of cars. In addition, the company hasfour tyre marts in Singapore and two in Malaysia, as well as five tyre workshops with major cardistributors in Singapore that provide tyres and services.

0

100

200

300

400

500

600

700

Feb01

Jun01

Oct01

Jan02

May02

Aug02

Dec02

Apr03

Jul03

Nov03

Feb04

Competitive position Average competitive score: 3+ Recommendations¹

Malaysia15%

HK/China21%

Singapore52%

Indonesia3%Thailand

5%

Latin America

2%Others

2%

Source: Company

Market data Headquarters 19 Lok Yang Way, Jurong, Singapore 628635, Singapore

Website www.stamfordtyres.com

Shares in issue 197.5m

Freefloat 60%

Majority shareholders Wee Kok Wah (32.5%)

Supplier power 2- Stamford Tyres is dependent on key vendors for tyre allocation. With Continental, Sumitomo and Toyo being large established companies with strong brands, suppliers yield significant power.

Barriers to entry 4+Establishing a strong distribution network, brand name and reputation with the market and keyvendors are the most difficult challenges for potential entrants.

Customer power 3+Stamford Tyres is not dependent on any single customer. The group utilises multiple dealers in thedifferent countries for its network reach.

Substitute products 4+Substitution with low-end generic tyres is a low-level threat as Stamford Tyres focuses on the nichesegment of quality branded tyres.

Rivalry 3+Competition is keen in the tyre distribution business. However, Stamford Tyres has been able to setitself apart from the competition by focusing on the high-end tyre segment.

Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

Singapore

Country view Overweight Country rel to Asia Pacific

The Singapore economy has clearly hit a cyclical trough. Consumption indicators have continued tostrengthen in recent months, following an initial post-SARS rebound in 2Q. Notwithstanding the structural challenges, Singapore today remains a major important regional transport and financialcentre for the Asean region, a major goods producer for the world. Singapore electronic exportshave resumed growth. The risk of an overly-bearish call on Singapore is global demand continuingto surprise on the upside. In the Asia ex Japan portfolio, we have moved to neutral from our previous marginal underweight in Singapore and recommend banks and regional transport stocks toplay the domestic and regional cyclical recovery. In the Asia Pacific ex Japan portfolio, Singapore isa marginal overweight.

The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team.

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Buy: SingTel, DBS Bank, OCBC, SPH, STE, SCLog, NOL, MobileOne, Star Cruises, China Aviation

Add: UOB, SIA, Want Want

Hold: UOL, SMRT

Reduce: Chartered Semi

Sell:

1. Other absolute performance recommendations in the same market. Largest 10 or so companies by market cap.

Strengths 5 Well-established distribution channel, brand name and reputation in the auto-parts industry. Good long-term relationships with key vendors. A dedicated and passionate management team.

Weaknesses 2 Dependence on tyre allocation from key vendors. Slightly late in establishing wheel manufacturingbusiness.

Opportunities 5 Significant market opportunities in China, Thailand and other Asian/Australasian countries. With lowvehicle penetration rates in Asia, long-term growth prospects are good.

Threats 2 Unforeseen events at vendors (eg, fire at tyre manufacturing plant) would affect allocation of tyres and accordingly the growth rate of Stamford Tyres.

Scoring range is 1-5 (high score is good)

Strategic & competitive overview

Documents

Stamford Tyres Corp Buy Flooring itstamfordtyres.listedcompany.com/misc/ST_ResearchReport_26022004.pdfSolid prospects in Asian tyre industry Asia's tyre industry has significantly