We maintain our Neutral recommendation on TRW Automotive Holdings Corporation (TRW). Headquartered in Michigan, U.S., TRW Automotive is a leading manufacturer of advanced technology products and services for the automotive markets.
The company operates in 27 countries through its subsidiaries. Operations primarily involve the design, manufacture and sale of active and passive safety related products.
TRW Automotive is also placed among the world’s 10 largest suppliers of automotive systems, modules and components to global automotive manufacturers.
The company released its 2011 third quarter earnings on November 2, 2011. TRW Automotive’s profit declined 6% to $177 million or $1.37 per share (excluding debt retirement charges) from $189 million or $1.47 per share (excluding debt retirement charges and favorable tax benefits) in the prior-year quarter.
The decline in profit was due to increased raw material costs, higher legal fees and planned increases in costs to support the company’s future growth.
Revenues in the quarter grew 14% to $3.9 billion on higher vehicle production volumes, strong demand for the company’s active and passive safety products as well as favorable currency fluctuations.
We believe the company’s Occupancy Safety Systems business possesses immense growth potential. The credit for this goes to the enforcement of the regulation introduced by the U.S. National Highway Traffic Safety Administration that requires all passenger cars to install side-impact safety devices from 2013 onwards.
Moreover, substantial prospects for its Electric Power Steering (EPS) systems business is also evident both in the domestic and international market, driven by increased demand for fuel-saving and emission reducing technology. As a result, TRW has started production of EPS from its facilities in Anting, China to support its growing business in the Asia-Pacific region.
However, a challenging pricing environment along with unsustainable consumer demand has made the company vulnerable to risk. To this has added TRW Automotive’s high customer concentration.
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