PHINIA (PHIN) Morgan Stanley‘s 12th Annual Laguna Conference 2024 summary

Business overview and market positioning

• Maintains a balanced portfolio: 44% light vehicle, 25% commercial vehicle (CV), and a significant aftermarket presence, especially in Europe.

• Fully separated from former parent, with all contract manufacturing and TSAs completed.

• Aftermarket business has outperformed expectations for 18 months, offsetting declines in other segments.

• ICE (internal combustion engine) focus remains strong, with growing relevance in hybrid and plug-in hybrid markets.

• Entering new markets such as off-highway, aerospace, and industrial, with first off-highway OEM application launching this year.

Financial performance and outlook

• First six months of the year saw only a 1% year-over-year decline, outperforming peers.

• Fuel systems down 3.5% due to expected CV slowdown and weak China CV, but aftermarket strength provided balance.

• Third quarter tracking within expectations; some fourth quarter uncertainty, especially in China.

• Aftermarket expected to grow 1.5%-2% annually, with steady performance projected through 2035.

• Off-highway and non-automotive expected to be 2%-3% of portfolio by decade's end.

Market share, competition, and pricing

• Gaining market share as major suppliers exit ICE; few competitors remain, mainly Bosch and Denso.

• Customers intentionally diversify away from Bosch to avoid concentration.

• Hybrid and plug-in hybrid demand rising, especially in China, driving new business wins.

• Pricing power has improved due to fewer suppliers and risk-based pricing for 4-5 year programs.

• Less price pressure from OEMs as they recognize the need to retain ICE suppliers.