1. Standard Motor Products
Jack Lindblad
Jiayue (Lydia) Li
Quintus Yang
12/12/2017

2. Industry Overview and Analysis Company Overview Financial Analysis
Agenda
Selection Criteria
Industry Overview and Analysis
Company Overview
Financial Analysis
Comparable Valuation
DCF Valuation
Recommendation

3. Selection Criteria EBITDA and Greenblatt Ratio Small Company
Expertise in two product categories
Favorable industry demographics
Strong stock price performance
Emphasize on shareholder return

4. Industry Analysis

5. Industry Overview PORTER’S FIVE FORCES Industry Outlook 2025 – $357B
– Slow & steady revenue growth
• 2-3% per year
– Vehicles have become increasingly complex
– Majority Growth in DIFM segment
Consists of Large Number of diverse manufacturers varying in product specialization and price
Key to succeed in this industry:
Compete on the basis of product, quality, price and order fill rate
PORTER’S FIVE FORCES
Competitive Rivalry
HIGH
Threat of New Entrants
Moderate
Bargaining Power of Customers
Threat of Substitute Products
Low
Bargaining Power of Suppliers
Source: SMP Investor Presentation

6. Macroeconomic Factors
Aging Vehicle Population
Increasing Miles Driven
Increasing Vehicle Numbers
High Demand from End Market
Source: United States Department of Transportation and Company Presentation

7. Company Analysis

8. Technical Analysis Missed Q2 EPS amount, beat the revenue amount
Weak Q3 performance compared to 2016 results
Source: Bigcharts.com and seeking alpha

9. Company Introduction
Overview
Financial Snapshot
Founded in 1919
Headquartered in Long Island City, New York
Went Public on NYSE in 1978
4100 Employees worldwide
13 Manufacturing Plants • 5 Distribution Centers • 7 Offices
Independent manufacturer and distributor of replacement parts for motor vehicles in the automotive aftermarket industry
Current Stock Price: $44 (12/8/2017)
52 Week Price Range: $40.56-$55.37
Market Cap: $995 million
Trailing P/E Multiple: 18.63x
Forward P/E Multiple: 13.37x
Enterprise Value: $1.04 billion
TEV/EBITDA: 7.1X
2016 Revenue: $1.06 billion
ROE: 13.7%
Facility Base
Product Category
Engine Management • Ignition Products • Emissions Products • Fuel Delivery • Vehicle Electronics • Wire & Cable
Temperature Control • A/C Compressors
• Other A/C System Components
• Engine Cooling Products
• Blower & Radiator Fan Motors
• Window Lift Motors
Source: Company Website, 10-K and Yahoo Finance

10. Products Engine Management Temperature Control
Competitive Advantage: best-in-class, full-line, full-service supplier of premium products to the engine management and temperature control markets.
Source: company product catalogue, 10-K and presentation

11. Value Chain Analysis 20% 18% 17% 11% Warehouse Distributors
Suppliers
SMP
Customers
Brass
Electronic components
Copper
Steel magnets
Aluminum coils
Chemicals
Warehouse Distributors
Large Retailers
Export Customer
OE/OES Customer
Manufacture
Remanufacture
Purchase
Component and Cores
Low Cost Manufactures
Customer
%Revenue
20%
18%
17%
11%

12. Management Team and Shareholder
Patrick McClymont
New Board Director
Former Partner from Goldman Sachs
Head of Global Transportation & Infrastructure Group
CFO of IMAX
CFO of Southeby’s
Long time management experience
Great education background
Institutional Shareholder
% Ownership
BlackRock,Inc.
11.31
FMR LLC
9.28
Royce & Associates, LP
9.14
Dimensional Fund Advisors L.P.
7.09
The Vanguard Group, Inc.
4.8
Source: company presentation and Capital IQ

13. Strategy 1: Increased in-house manufacturing
Engineering resources
• 10 fully equipped design & development centers
• 200 engineers, techs & designers – up 30% from 2013
Capital spending
• 80% of capital budget goes to new part development for manufacture
Acquisitions and Joint Ventures
• Great “shortcut” for new technologies
• 12/1/2017 Forms a Joint Venture with Foshan Guangdong Automotive Air Conditioning Co., Ltd.
(a China-based manufacturer of air conditioning compressors for the automotive aftermarket and the Chinese Original Equipment market)
2014 forms a joint venture with Gwo Yng Enterprise Co., Ltd.
(a basic manufacturer of air conditioning accumulators, filter driers, hose assemblies, and switches for the automotive aftermarket, original equipment and original equipment service markets)
Source: investor presentation and company website

14. Strategy 2: Cost Reductions
Relocating the Manufacturing Process
Global Sourcing Initiative
Financial Results: Increased Operating Margin
Source: 10-K and company presentation

15. Strategy 3: Strategic Acquisitions
Acquisitions: Bolt-on: acquire competitors or related line and merge it into own operation Vertical integration: acquire suppliers and become a manufacturer of the product Rational -Demonstrable and measurable synergies with minimal risk -Contributes to other strategic objectives • Increased manufacturing • Low-cost manufacturing -Provide enhanced value to our customers • Helps with Full-Line, Full-Service model • Economies of scale allows further investment • Helps address part complexity / SKU proliferation headwind
Recent Acquisitions:
2016 General Cable’s North American automotive ignition wire business (ignition wire offering)
2014 Acquired the assets of Pensacola Fuel Injection's diesel remanufacturing.
2014 Acquired the assets of Annex Manufacturing, a distributer of a variety of temperature control products for the automotive aftermarket.
2013 Acquired an equity position in Orange Electronics for censor manufacturing
2012 Acquired CompressorWorks Inc for automotive compressor
2011 Acquired BLD products engine control business
Source: 10-K and company website

16. SWOT Analysis Strengths Weaknesses Opportunities Threats
Strong brand image
Deep experience in the selected product category
Operational efficiency/ low cost
Strong cash flow
High concentration of customers
Seasonality
Currency exchange rate
Asbestos Liability
Opportunities
Threats
Industry trend – increasing complex vehicles
Acquisitions-expanding customer base
Expand into OES market
Low priced product from Asia
Warranty-related returns or product recall
Unable to follow the technology trend
Trade policy with Mexico and China

17. Financial Analysis

18. Greenblatt Return on Capital
Financial Analysis
Return on Equity
Greenblatt Return on Capital
Operating Margin
Interest Burden
Tax Burden
Asset Turnover
Leverage Ratio
ROE
9.5%
1.4x
1.7x
13.7% × =
Source: Annual Reports
DuPont Analysis (FY16)
98.4%
61.3%

19. Comparable/Peer Selection
EV($mm)
Business Description
Aftermarket
Dorman, Inc.
$2,106
Dorman Products, Inc. supplies automotive replacement parts, automotive hardware, brake products, and household hardware to the automotive aftermarket and mass merchandise markets
100%
MPAA
$516
 Motor Parts of America, Inc. manufactures, remanufactures, and distributes automotive aftermarket parts.
Stoneridge, Inc.
$724
Stoneridge, Inc. designs and manufactures engineered electrical and electronic components, modules, and systems. It operates through three segments: Control Devices, Electronics, and PST.
15%
BorgWarner, Inc.
$13,494
BorgWarner Inc. provides solutions for combustion, hybrid, and electric vehicles worldwide. The company operates through two segments, Engine and Drivetrain. 6%
Dana Incorporated, Inc.
$6,093
Dana Incorporated manufactures and sells driveline, sealing, and thermal-management products for vehicle manufacturers in North America, Europe, South America, and the Asia Pacific. 
Aftermarket customers purchase products from all Dana business units, View as significant growth opportunity
Source: Company’s 2016 Annual Report/Investor Presentation
Source: Company’s 2016 Annual Report/Investor Presentation

20. Financial Analysis Sales Growth(%) Days Inventory
Cash Conversion Cycle
Current Ratio
Source: Company’s SEC Filings

21. Financial Analysis Gross Margin (%) EBITDA(%)
Greenblatt Earnings Yield
Greenblatt Return on Capital
Source: Company’s SEC Filings

22. Valuation

23. Comparable Valuation LTM EV/EBITDA LTM EV/EBITDA 8.9x LTM EBITDA 121
75th percentile
10.5x
7.7x
Mean
9.7x
7.4x
Median
9.9x
7.1x
25th Percentile
8.9x
6.6x
SMP, Inc. NA
LTM EV/EBITDA
8.9x
LTM EBITDA
121 EV
1,075
Net Debt 48
Equity Value
1,027
Shares Outstanding 23
Share Price
$45.40
LTM EV/EBITDA
9.7x
LTM EBITDA
121 EV
1,176
Net Debt 48
Equity Value
1,128
Shares Outstanding 23
Share Price
$49.89
Source: Company Financial Statements, Capital IQ Estimates

24. DCF – Key Assumptions Revenues Expenses 2012 A 2013 A 2014 A 2015 A
Engine Management
(% growth)
5.8%
6.9%
-0.3%
-1.6%
9.7%
6.0%
3.0%
2.0%
Temperature Control
15%
-2.3%
-1.3%
2.1%
7.3%
1.0%
5.5%
-2.0%
2.5%
1.5%
Total Revenue
8.5%
3.7%
-0.9%
8.9%
4.6%
3.6%
1.7%
1.9%
Expenses
2012 A
2013 A
2014 A
2015 A
2016 A
2017 P
2018 P
2019 P
2020 P
2021 P
COGS
(% of revenue)
-72.6%
-70.5%
-71.1%
-69.5%
-68.5%
-67.5%
SG&A
-19.8%
-20.5%
-19.7%
-21.2%
-20.9%
-19.5%
-19.0%
-18.0%

25. Recommendations

26. Low Growth Outlook Recommendation Low Cost Strategies
Current: $ 44 Base: $ 44.6 Comps: $
Low Cost Strategies
Competitive Industry
Low Growth Outlook
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