EP Manufacturing Bhd (Nov 23, 78 sen)
Maintain buy at 76.5 sen with fair value of RM1.38: EPMB’s earnings for 9MFY11 of RM29.8 million surpassed our full-year estimate of RM31.6 million. Earnings for 9MFY11 surged 77.6% due to greater economies of scale despite a 10.3% drop in revenue. The lower revenue was due to the disruption in auto parts supply in Japan, which led to a few months’ delay in launching the new Myvi in 1H11. However, on a quarterly basis, EPMB’s earnings weakened due to the effects of slowing production during the Ramadan period coupled by amendments to the Hire Purchase Act, which resulted in delays in delivering vehicles at the time.
Owing to the economies of scale achieved, EPMB’s thin margins in the past are now on track to widen, thanks to the full-year output of the Perodua Myvi come 2012. This resulted in profit before tax margin year-to-date nudging up by 1.58 percentage points to 6.8%, which we think should move up and match its peers.
EPMB’s revenue is expected to grow further as the company secures more localisation jobs and recognises the full-year revenue impact from the Myvi. On top of manufacturing components for Proton’s Persona replacement, we also understand that the company is pushing to localise some components for UMW, as it currently supplies to Saudi Arabia’s biggest Toyota distributor.
We upgrade our earnings forecasts for FY11 by 15% but leave our FY12 and FY13 numbers unchanged. With our valuation already pegged at five times FY12 earnings since early 2H11, we maintain our “buy” call on the counter, with our fair value of RM1.38 retained. — OSK Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
Maintain buy at 76.5 sen with fair value of RM1.38: EPMB’s earnings for 9MFY11 of RM29.8 million surpassed our full-year estimate of RM31.6 million. Earnings for 9MFY11 surged 77.6% due to greater economies of scale despite a 10.3% drop in revenue. The lower revenue was due to the disruption in auto parts supply in Japan, which led to a few months’ delay in launching the new Myvi in 1H11. However, on a quarterly basis, EPMB’s earnings weakened due to the effects of slowing production during the Ramadan period coupled by amendments to the Hire Purchase Act, which resulted in delays in delivering vehicles at the time.
Owing to the economies of scale achieved, EPMB’s thin margins in the past are now on track to widen, thanks to the full-year output of the Perodua Myvi come 2012. This resulted in profit before tax margin year-to-date nudging up by 1.58 percentage points to 6.8%, which we think should move up and match its peers.
EPMB’s revenue is expected to grow further as the company secures more localisation jobs and recognises the full-year revenue impact from the Myvi. On top of manufacturing components for Proton’s Persona replacement, we also understand that the company is pushing to localise some components for UMW, as it currently supplies to Saudi Arabia’s biggest Toyota distributor.
We upgrade our earnings forecasts for FY11 by 15% but leave our FY12 and FY13 numbers unchanged. With our valuation already pegged at five times FY12 earnings since early 2H11, we maintain our “buy” call on the counter, with our fair value of RM1.38 retained. — OSK Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
