- We downgrade APM to HOLD from BUY and lower our fair value
to RM5.40/share (from RM6.50/share) following the release of weak 4Q12 results
and expectations of weak earnings momentum in the near term, on top of disappointing
dividends.
- The group reported core earnings of RM29mil for 4Q12, which
brought FY12 earnings to RM121mil. This was below our expectations, but ahead
of consensus, accounting for 85% and 107%, of FY12 estimates, respectively.
- 4Q12’s reported earnings (-26% QoQ) were dragged down by
several exceptionals:- (1) Inventory devaluation and marked-to-market forex
loss (RM4.3mil); (2) VSS cost (RM2.3mil); (3) Relocation of extrusion plant
(RM1mil). The inventory impairment was a one-off event as 4Q12 saw rapid
deterioration in JPY:MYR rates.
- Price adjustments to OEMs seem to have been reflected in earnings
earlier than expected, probably due to OEMs building up parts inventory 2-3
months ahead of actual production. The impact from the price adjustments in
4Q12 was c. RM3mil.
- This factor will likely continue to be a key drag on FY13 earnings.
We gather from industry sources that major OEMs have been pushing for up to a
15% reduction in parts prices from vendors.
- We have trimmed FY13F-14F earnings by 25%-30% to reflect selling
price pressure and delayed contributions from the APM-IAC venture; though going
forward, this could be partly compensated by cheaper imports from cheaper JPY
and USD. While there are usually price adjustments with key customers for
changes in FX, the sharp price reduction already taken ahead of this suggests a
weak case to do so.
- Dividends disappointed – flat YoY at 32 sen/share, though this
still translates into attractive yields of 6%. We suspect the group’s decision
to conserve cash is due to potentially increased capex requirements for major
development projects with a national car marque in the near future – which
means dividends are unlikely to increase anytime soon.
- We suggest investors switch into OEMs that will benefit from
the part price reductions from 1Q13, i.e. Perodua, via MBM (BUY, FV:
RM4.60/share – Perodua accounts for 60% of bottom line) and UMW (BUY, FV:
RM13.20/share – Perodua accounts for 15% of bottom line).
Source: AmeSecurities
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