- We maintain our BUY call on APM, with an unchanged fair value
of RM6.50/share. It was announced yesterday that APM has entered into a JV with
Tachi-S (Thailand) Co Ltd to develop, manufacture and sell automotive seats for
OEMs in Malaysia.
- Tachi-S (Thailand) is a global supplier and manufacturer
of automotive seating systems with key customers being Nissan, Toyota, Honda
and Mitsubishi. The group is a unit of Tokyo-listed Tachi-S, in charge of
overseeing the larger group’s operations in India and ASEAN.
- A total initial investment of RM3.5mil will be put in,
with APM taking a 60% stake in the venture while Tachi-S will control the
remaining stake. The JV will likely be focused on marketing, sales and R&D
while the manufacturing of products will be via APM’s existing plants. APM’s
portion of investment (of RM2.1mil) will be funded by internallygenerated
funds.
- While APM already manufactures and supplies seats to OEMs
in Malaysia, it is doing so as a Tier 2 supplier. By partnering with Tachi-S
(which is a Tier 1 supplier), APM would have access to detailed design drawing
and technical blueprints from Japan.
- The move should pave the way for a deeper localisation for
future Nissan models. In fact, the much deeper localisation for the Almera (50%
localisation rate vs. typical 30-40% localisation for existing Nissan models)
was partly a result of deeper technical partnership with Tachi-S prior to this official
JV being set up.
- No changes to our projections at this juncture, as contributions
from the JV (in the form of increasing revenue per car set) will only gradually
be reflected as and when new CKD Nissan models are rolled out. The higher
revenue contribution also comes with higher MI leakage as APM only owns 60% of
the JV.
- Nonetheless, we are overall positive on the move as it structurally
lifts APM’s positioning within the OEM parts supply space – having established
a strong partnership with a global Tier-1 supplier. The move follows APM’s JV
with Tier-1 European supplier, IAC (International Automotive Components) back
in 2011.
- A key near-term catalyst for APM is a step-up in dividends
(usually announced in 4Q results). We project FY12F GDPS to rise to 40
sen/share (7% yield) and FY13F to 50 sen/share (9% yield). APM’s huge
un-utilised cash pile of RM380mil net cash (or RM1.88/share, accounts for 35%
of market cap) and past 5 years’ average annual FCF of RM82mil (RM0.41/share)
should easily support the dividend payout.
Source: AmeSecurities
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