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Autoliv Expands in Asia

Zacks Equity Research

The global leader of automotive safety systems, Autoliv Inc. (ALV) announced the construction of a new airbag manufacturing plant in Chonburi, located 70 km east of Bangkok. The company took this initiative to meet the increased production of vehicles and rising demand for airbag fitments in Asia.

Autoliv will be investing around $3 million for the plant, which will be located adjacent to existing airbag facility of the company in Thailand. The plant covers 4,800 square meters of area and is expected to start functioning from Sep 2013.

For full year 2013, Autoliv anticipates organic sales growth in the range of 2% to 4%. It expects that airbag module volume will be 1.5 million units in 2013. The company also anticipates that airbag volume will improve to 3.5 units by 2015. Autoliv also believes that airbag fitment rates will benefit from the implementation of New Car Assessment Program for Southeast Asian Countries (ASEAN NCAP) program.

Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has continuously expanded in low-cost countries, including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries.

Autoliv posted a 20.6% increase in earnings per share to $1.29 in the first quarter of 2013 from $1.07 year ago, beating the Zacks Consensus Estimate by a couple of cents. Earnings benefited from lower capacity alignments and antitrust investigations costs, partly offset by lower underlying operating profit. Consolidated revenues slid 2.0% to $2.1 billion due to negative currency effects and a small divestiture.

However, we are concerned about the company’s increased raw material costs. Further, the company faces significant customer concentration risks as its top-5 represent about 60% of sales.

Currently, Autoliv retains a Zacks Rank #3 on its stock, which translates to a Hold rating. Other stocks that are performing well in the industry include Tower International, Inc. (TOWR), Visteon Corp. (VC) and STRATTEC Security Corp. (STRT). They carry a Zacks Rank #1 (Strong Buy).

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