APM Automotive Holdings (Dec 7, RM4.38)
Maintain market perform with lower fair value of RM4.30 from RM4.50: APM will likely face a challenging year in 2012 with pressure on both cost and pricing. While steel and resin prices are manageable, the recent strength of the yen and US dollar will pressure margins.
APM faces renewed pressure on pricing from original equipment manufacturer (OEM) customers continually looking to cost down. From a volume perspective, we are expecting total industry volume (TIV) in 2012 to stay relatively flat. Proton and Perodua will continue to dominate the local market contributing about 60% of APM’s revenue.
APM’s strategy to boost revenue and margins involves efforts to supply complete component modules as opposed to individual components.
With effective automotive duties currently hinging on the level of localisation achieved, we see increasing efforts by domestic assemblers to raise local content levels that will benefit APM.
The recently announced joint venture agreements (JVA) with the International Automotive Components Group (IAC) expand APM’s regional footprint and improve its ability to win new business from European manufacturers who are becoming increasingly important players in the domestic market.
APM will also continue to leverage on its relationship with sister company Tan Chong Motor Holdings Bhd. We also expect APM to benefit from Tan Chong’s contract assembly deals on behalf of Warisan TC (Beiqi Foton vehicles) and HK-listed TCIL (Subaru vehicles).
There are also opportunities from Japanese OEMs looking to lower supply chain risks by spreading their assembly and production facilities following the natural disasters experienced in Japan and Thailand this year.
Investor interest in APM could be sustained by the possibility of a higher dividend payout considering its consolidated net cash position of RM361.6 million as at end-September that could fund a dividend of up to RM1.85 per share.
Our 2011 forecasts are broadly unchanged. However, we lower our 2012/13 estimates by 11.3% and 11.7% after dialling back our revenue growth and margin assumptions. Risks include lower car sales and unfavourable foreign exchange trends.
We make no change to our “market perform” recommendation. However, we lower our fair value estimate to RM4.30 (from RM4.50) derived from applying a seven times (from 6.5 times) target price earnings ratio (PER) to 2012 earnings (unchanged).
The target PER is a 10% discount to the five-year average PER of 7.8 times that fairly reflects prospects for the year ahead. APM’s share price should also be supported by an expected gross yield of 5% based on conservative gross dividends per share estimates of 22 sen and 24 sen for 2011 and 2012 respectively. — RHB Research, Dec 7
This article appeared in The Edge Financial Daily, December 8, 2011.
Maintain market perform with lower fair value of RM4.30 from RM4.50: APM will likely face a challenging year in 2012 with pressure on both cost and pricing. While steel and resin prices are manageable, the recent strength of the yen and US dollar will pressure margins.
APM faces renewed pressure on pricing from original equipment manufacturer (OEM) customers continually looking to cost down. From a volume perspective, we are expecting total industry volume (TIV) in 2012 to stay relatively flat. Proton and Perodua will continue to dominate the local market contributing about 60% of APM’s revenue.
APM’s strategy to boost revenue and margins involves efforts to supply complete component modules as opposed to individual components.
With effective automotive duties currently hinging on the level of localisation achieved, we see increasing efforts by domestic assemblers to raise local content levels that will benefit APM.
The recently announced joint venture agreements (JVA) with the International Automotive Components Group (IAC) expand APM’s regional footprint and improve its ability to win new business from European manufacturers who are becoming increasingly important players in the domestic market.
APM will also continue to leverage on its relationship with sister company Tan Chong Motor Holdings Bhd. We also expect APM to benefit from Tan Chong’s contract assembly deals on behalf of Warisan TC (Beiqi Foton vehicles) and HK-listed TCIL (Subaru vehicles).
There are also opportunities from Japanese OEMs looking to lower supply chain risks by spreading their assembly and production facilities following the natural disasters experienced in Japan and Thailand this year.
Investor interest in APM could be sustained by the possibility of a higher dividend payout considering its consolidated net cash position of RM361.6 million as at end-September that could fund a dividend of up to RM1.85 per share.
Our 2011 forecasts are broadly unchanged. However, we lower our 2012/13 estimates by 11.3% and 11.7% after dialling back our revenue growth and margin assumptions. Risks include lower car sales and unfavourable foreign exchange trends.
We make no change to our “market perform” recommendation. However, we lower our fair value estimate to RM4.30 (from RM4.50) derived from applying a seven times (from 6.5 times) target price earnings ratio (PER) to 2012 earnings (unchanged).
The target PER is a 10% discount to the five-year average PER of 7.8 times that fairly reflects prospects for the year ahead. APM’s share price should also be supported by an expected gross yield of 5% based on conservative gross dividends per share estimates of 22 sen and 24 sen for 2011 and 2012 respectively. — RHB Research, Dec 7
This article appeared in The Edge Financial Daily, December 8, 2011.
