Tuesday 19 March 2013

Auto Sector - 4Q12 in a nutshell, positioning for FY13 OVERWEIGHT


- 4Q12 results season were mixed, but leaned more towards disappointments: TCM saw earnings meeting expectations for the 1st time since at least the past four quarters. UMW’s results were in-line, but APM’s and MBM’s numbers disappointed, specifically dragged by their parts manufacturing divisions.

- Earnings pressure for auto part players: Auto parts players saw initial/partial impact from downward price adjustments for key national OEMs. APM saw earnings contract 2% QoQ (-22% YoY) while MBM’s auto manufacturing division saw earnings contract 16% QoQ. Our chat with MBM suggests that its auto parts manufacturing business has seen the impact from price revisions since December 2012. However, the impact from downward price adjustments should be partly mitigated by Hirotako’s efforts to reduce cost, which include finding new sources of raw materials via Sweden-based airbag partner, Autoliv.

- Aggressive competition affects margins: UMW autos saw operating margins contract to 14% in 4Q12 from 17% in 3Q12, though we believe the stronger USD booked in the quarter compounded the impact. TCM had an exceptionally strong quarter in 4Q12 due to the maiden contributions from the Almera (sales: +38% QoQ) resulting in improved margins (+1.3pp QoQ to 6.6%), in contrast to the broader industry trends.

- Outlook is looking a lot better: FY13F is set to see further earnings improvements:- (1) A stronger MYR against JPY, and USD to a certain extent; (2) Full-year impact of the Almera for TCM; (3) More competitive parts pricing from local vendors for Perodua; (4) Launch of the new Vios in 2H13. However, a key risk is a more competitive environment, in particular, selling prices.

- Expect seasonal weakness in upcoming TIV: February TIV is expected to be announced this week, which we expect to be seasonally weak due to a short working month and CNY festive holidays. We estimate Feb TIV at 46K-47K units, down 15%-16% MoM but up 5%-7% YoY. Nissan is likely to remain a key outperformer among the Big 5 automakers in Malaysia, carrying on the Almera’s strong sales momentum. On YTD basis, TIV should still stage a strong 20% increase. Perodua and Toyota Feb sales are estimated to contract by 1%-33% YoY, while Nissan’s Feb TIV is estimated to increase by 88% YoY. Honda should see exceptionally strong growth as its Feb 2012 TIV was badly impacted by the Thai floods.

- We remain OVERWEIGHT on the auto sector: TCM (BUY, FV; RM6.40/share) remains our high-conviction stock pick. Key catalysts:- (1) A more than doubling of earnings on the back of a stronger MYR vs. JPY and USD, 40% YoY volume growth and improved plant economies of scale; (2) Contract assembly wins within the next 12 months riding on its robust regional manufacturing and distribution capacity; (3) Potential franchise expansion within the region.

- We also like MBM (BUY, FV: RM4.60/share) for the potential from its comprehensive auto manufacturing licence which has yet to be utilised. Further clarity on this should be obtained once incentives for foreign OEM investment are finalised under the NAP review within the next few months. Meanwhile, Perodua is expected to see significant earnings improvements from cheaper input cost and a weaker JPY. An every 1% change in MYR:JPY impacts bottom line by 1%-2%.

Source: AmeSecurities

No comments:

Post a Comment