- We re-affirm our
BUY call on APM Automotive, following the release of strong 2Q12 results. We
maintain our fair value at RM6.50/share, still pegging it at 7x ex-cash FY12F earnings.
- APM reported a core
net profit of RM30mil for its 2Q12, bringing 1H12 earnings to RM62mil. This is
within expectations, accounting for 43% of our projection but looks to be well
ahead of street expectations accounting for 47% of estimates given expectations
of a much stronger 2H12.
- Earnings were only
down 4% QoQ and revenue was in fact up 1% QoQ despite a production contraction
of 4%-6% at key clients Proton and Perodua given APM’s diverse client base.
Additionally, revenue per car has been steadily increasing (+3% QoQ).
- Margins however,
were slightly impacted (EBIT margin: -0.7pp QoQ to 13%) by higher material
import cost, given a stronger Yen and US$ in 2Q12. Nonetheless, bear in mind that
for supplies to key clients, APM has the ability to pass through raw material
cost fluctuations via periodic reviews with clients.
- A key issue in 2Q12
was a contraction in production (despite a 17% QoQ increase in TIV),
particularly at Perodua and Proton, which collectively accounted for 63% of
1H12 TIP (Total Industry Production), due to initial production hiccups for
Proton Preve (launched in April) and DRB’s decision to run down Proton’s
inventory upon acquisition in March. Perodua meanwhile underwent a week-long
plant maintenance in 2Q12.
- We expect
production to catch up with strong sales in 2H12 given sustained demand
visibility and once channel inventories normalised. Notably,
production-to-sales ratio in 1H12 was exceptionally low at 85% compared with
92%-94% in 2009-2010.
- Secondly, the
launch of the Almera will provide a significant revenue boost in 4Q12. Nissan
is targeting 10K booking bank ahead of the official launch of the model. Furthermore,
given its status as a sister company, APM derives up to 40% higher revenue per
car set from Nissan compared to supplies to a key customer like Proton, on our
estimates.
- A dividend of
10sen/share was announced in 2Q12, which is at a similar level as last year’s.
However, we expect this to increase– APM usually announces special dividends in
the final quarter. FY11 saw GDPS increasing by 60% to 30sen/share. We estimate
FY12F GDPS at 40sen/share implying an attractive 8% yield.
Source : AmeSecurities
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