APM Automotive Holdings Bhd (Nov 16, RM4.40)
Upgrade to market perform at RM4.44 with revised fair value of RM4.50 (from RM4.20): APM is due to announce its 3QFY11 results after market close today. We are looking for a quarterly net profit of about RM32 million, flat year-on-year (y-o-y) but up about 14% q-o-q. This follows a relatively lacklustre 2QFY11 caused by the combined effects of the supply disruption from the Japan earthquake and the amendments to the Hire Purchase Act that resulted in delays in vehicle registrations. A sequential improvement in earnings is expected given the 10.3% q-o-q recovery in total industry volumes (TIV) during the September quarter that was prompted by the good market response to the launch of the new Myvi by Perusahaan Otomobil Kedua Sdn Bhd (Perodua) in mid-June. The new Myvi helped to lift Perodua’s (APM’s largest customer) sales 41.2% q-o-q during the September quarter. APM’s overseas revenue, mainly from Indonesia and Australia, should improve as a result of the normalisation of component supplies. In particular, APM’s Indonesian business looks to be in a sweet spot with domestic auto sales heading for another record year after a 17.5% y-o-y increase in TIV to 659,857 units for the nine months to September.
APM recently announced two new joint venture agreements (JVA) with the International Automotive Components Group (IAC) to manufacture automotive interior plastic components and systems for domestic and multinational original equipment manufacturers (OEMs) in Malaysia (60%) and Thailand (40%). Associate contributions from the Thai JV will only begin in 2013 given the 18-month lead time. APM will also supply components to DRB-Hicom Bhd for its completely knock-down (CKD) Volkswagen project. In the longer term, APM is well-positioned to reap the benefits of increased 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.
Our 2011 forecast is unchanged although 2012 estimates have been raised 6.6% and 2013 by 10% after factoring in contributions from the new JVs with IAC. Key risks include lower car sales and unfavourable forex trends.
We upgrade our call on the stock to “market perform” (from “underperform”). Our fair value estimate is RM4.50 (from RM4.20) derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). Our target PER is a 16% discount to the five-year average PER of 7.8 times that we consider to be fair, given the 5.8% 2010/13 earnings compound annual growth rate. — RHB Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
Upgrade to market perform at RM4.44 with revised fair value of RM4.50 (from RM4.20): APM is due to announce its 3QFY11 results after market close today. We are looking for a quarterly net profit of about RM32 million, flat year-on-year (y-o-y) but up about 14% q-o-q. This follows a relatively lacklustre 2QFY11 caused by the combined effects of the supply disruption from the Japan earthquake and the amendments to the Hire Purchase Act that resulted in delays in vehicle registrations. A sequential improvement in earnings is expected given the 10.3% q-o-q recovery in total industry volumes (TIV) during the September quarter that was prompted by the good market response to the launch of the new Myvi by Perusahaan Otomobil Kedua Sdn Bhd (Perodua) in mid-June. The new Myvi helped to lift Perodua’s (APM’s largest customer) sales 41.2% q-o-q during the September quarter. APM’s overseas revenue, mainly from Indonesia and Australia, should improve as a result of the normalisation of component supplies. In particular, APM’s Indonesian business looks to be in a sweet spot with domestic auto sales heading for another record year after a 17.5% y-o-y increase in TIV to 659,857 units for the nine months to September.
APM recently announced two new joint venture agreements (JVA) with the International Automotive Components Group (IAC) to manufacture automotive interior plastic components and systems for domestic and multinational original equipment manufacturers (OEMs) in Malaysia (60%) and Thailand (40%). Associate contributions from the Thai JV will only begin in 2013 given the 18-month lead time. APM will also supply components to DRB-Hicom Bhd for its completely knock-down (CKD) Volkswagen project. In the longer term, APM is well-positioned to reap the benefits of increased 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.
Our 2011 forecast is unchanged although 2012 estimates have been raised 6.6% and 2013 by 10% after factoring in contributions from the new JVs with IAC. Key risks include lower car sales and unfavourable forex trends.
We upgrade our call on the stock to “market perform” (from “underperform”). Our fair value estimate is RM4.50 (from RM4.20) derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). Our target PER is a 16% discount to the five-year average PER of 7.8 times that we consider to be fair, given the 5.8% 2010/13 earnings compound annual growth rate. — RHB Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
