APM Automotive Holdings Bhd (Nov 18, RM4.40)
Maintain market perform at RM4.40 with fair value of RM4.50: APM’s 3QFY11 results were below expectations. Net profit for the quarter reached RM26.8 million (-4.41% quarter-on-quarter [q-o-q] and -11.4% year-on-year [y-o-y]) while cumulative 9MFY11 profit fell 12.2% y-o-y to RM82.7 million. Cumulative earnings amounted to just 66.4% of our previous 2011 estimate. The main reasons for the discrepancy were unfavourable average foreign exchange rates and operational upgrades that are likely related to costs associated with the consolidation of the Seri Kembangan plant to Port Klang during the quarter. In addition, effective tax rates for the quarter spiked higher to 29.6% due to deferred tax adjustments.
Revenue for the quarter rose 7.2% q-o-q to RM297.2 million, helped by the 10.3% q-o-q rebound in total industry volume (TIV). Cumulative revenue for 9MFY11 fell 1.7% y-o-y that was broadly in line with the 0.7% contraction in domestic TIV for the period. Revenue from overseas operations (mainly in Indonesia and Australia) disappointed, falling 24.7% y-o-y for the quarter and 15% y-o-y for the 9MFY11.
Higher revenue for the quarter helped lift earnings before interest and tax (Ebit) margin to 14.7% from 13.9% for 2QFY11 and 13.7% for 1HFY11.
We lower our 2011 forecasts by 9.4% after trimming our margin assumptions and factoring in higher effective tax rates. Our 2012/13 earnings estimates are unchanged. Prospects in 2012 remain decent, helped by strong sales of the new Myvi and supply of modules to DRB-Hicom Bhd for the locally assembled Volkswagen. APM’s longer term growth potential remains intact and will benefit from the ongoing localisation programmes by domestic assemblers in addition to being well-positioned to benefit from efforts by OEM auto manufacturers to geographically diversify and improve their supply chain redundancies after the natural disasters experienced by Japan and Thailand this year.
Key risks are lower car sales and unfavourable forex trends.
We make no change to our “market perform” recommendation and fair value estimate of RM4.50 derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). We believe APM is close to being fairly valued given 2010 to 2013 earnings compound annual growth rate of 5.8%. APM’s share price should also be supported by an expected gross yield of 5%. — RHB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
Maintain market perform at RM4.40 with fair value of RM4.50: APM’s 3QFY11 results were below expectations. Net profit for the quarter reached RM26.8 million (-4.41% quarter-on-quarter [q-o-q] and -11.4% year-on-year [y-o-y]) while cumulative 9MFY11 profit fell 12.2% y-o-y to RM82.7 million. Cumulative earnings amounted to just 66.4% of our previous 2011 estimate. The main reasons for the discrepancy were unfavourable average foreign exchange rates and operational upgrades that are likely related to costs associated with the consolidation of the Seri Kembangan plant to Port Klang during the quarter. In addition, effective tax rates for the quarter spiked higher to 29.6% due to deferred tax adjustments.
Revenue for the quarter rose 7.2% q-o-q to RM297.2 million, helped by the 10.3% q-o-q rebound in total industry volume (TIV). Cumulative revenue for 9MFY11 fell 1.7% y-o-y that was broadly in line with the 0.7% contraction in domestic TIV for the period. Revenue from overseas operations (mainly in Indonesia and Australia) disappointed, falling 24.7% y-o-y for the quarter and 15% y-o-y for the 9MFY11.
Higher revenue for the quarter helped lift earnings before interest and tax (Ebit) margin to 14.7% from 13.9% for 2QFY11 and 13.7% for 1HFY11.
We lower our 2011 forecasts by 9.4% after trimming our margin assumptions and factoring in higher effective tax rates. Our 2012/13 earnings estimates are unchanged. Prospects in 2012 remain decent, helped by strong sales of the new Myvi and supply of modules to DRB-Hicom Bhd for the locally assembled Volkswagen. APM’s longer term growth potential remains intact and will benefit from the ongoing localisation programmes by domestic assemblers in addition to being well-positioned to benefit from efforts by OEM auto manufacturers to geographically diversify and improve their supply chain redundancies after the natural disasters experienced by Japan and Thailand this year.
Key risks are lower car sales and unfavourable forex trends.
We make no change to our “market perform” recommendation and fair value estimate of RM4.50 derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). We believe APM is close to being fairly valued given 2010 to 2013 earnings compound annual growth rate of 5.8%. APM’s share price should also be supported by an expected gross yield of 5%. — RHB Research, Nov 18
This article appeared in The Edge Financial Daily, November 21, 2011.
