ARB Corporation (ARP) is a designer, manufacturer and distributor of accessories for four wheel drives (4WDs). ARP operates throughout Australia from state sales offices with attached warehouses. State sales offices distribute products primarily to ARB branded stores across the country.
The company also sells its products to vehicle manufacturers (OEMs) and exports direct from Australia and Thailand, as well as to customers via its US subsidiary, Air Locker Inc. Aftermarket operations accounted for 66% of overall sales in FY12, whilst export sales represented 22% and OEM sales made up 12%.
According to the Australian Bureau of Statistics (ABS), sport utility vehicle sales grew 5.9% year-on-year in November. Year-to-date sales in this vehicle category have risen 8.7%. There has also been longer-term shift towards demand for four wheel drives (4WDs) in the Australian vehicle sales market.
Passenger car sales increased 6.4% from November 2009 to November 2012. However, sport utility vehicles grew a far more impressive 37.3% over the same period. We expect this trend to continue as vehicle affordability improves due to the current low interest rate environment.
Moreover the high Aussie dollar has helped to contain car import costs, with the savings able to be passed onto consumers. As 4WD sales rise, there is expected to be greater demand for 4WD accessories.
History of growth
ARP capped off a solid FY12 by reporting a 1.7% increase in net profit to $38.5 million. Sales were up a healthy 5.7%, thanks largely to new store and warehouse growth in the Australian aftermarket (ARB stores) segment.
The recovery in 4WD production from the Japanese earthquake and Thailand floods in 2011 led to a spike in demand for ARP’s products during the financial year. The balance sheet was in healthy shape with a net cash balance of $33.2 million at the end of June 2012.
The results continue a history of robust growth for the group. In the ten years to FY12, revenue has risen at a compound annual rate of 13.2%, with net profit increasing at a rate of 15.8%.
The outlook for ARP is positive despite the still uncertain economic outlook. The group acquired Northern Territory-based Top Gear Accessories in July 2012 and plans to transform this business into an ARB store by 2013.
Moreover it acquired a property in Perth in preparation for another ARB store there. In our view, the geographic expansion combined with new store growth will drive even stronger growth in sales
Whilst the high Aussie dollar is hurting ARP’s export sales, we feel the growth in the core domestic market will more than offset this, translating into further gains for ARP’s share price.
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