Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
Research House: INTER PACIFIC
APM Automotive Holdings Bhd
(Aug 19, RM4.85)
Reiterate outperform at RM4.91 with revised target price RM5.70 (from RM5): Our FY2010F/11F earnings forecast remains intact. We continue to reiterate our 'outperform' recommendation with our revised target price of RM5.70 (RM5 previously) based on FY2010 forecast EPS of 54.7 sen and PER of 10.4 times.
We remain positive on APM given its solid free cash flow, attractive dividends and strong balance sheet amid a resilient net cash position currently at RM1.47 per share as at end-June. Key risks include: (i) slowdown of the economic recovery; (ii) lower-than-expected industry vehicle sales volumes; and (iii) weakening ringgit.
APM's annualised 1HFY2010 net profit of RM62.5 million is above our expectation and consensus, which accounts for 56.7% and 62.4% of our full-year forecast and market consensus respectively. As expected, APM declared an interim dividend of eight sen per share during the quarter under review.
APM posted a strong performance in 2QFY2010 with pre-tax profit up 114.7% year-on-year (y-o-y) to RM54.1 million which includes a one-time price adjustment amounting to RM7.6 million on the back of higher revenue, up 47.6% y-o-y. By excluding the adjustment, its pre-tax profit would soar by 84.5% y-o-y. The positive growth performance was attributed to: (i) higher production volume and economies of scale; (ii) +141.6% y-o-y surge in its domestic contribution; (iii) better selling prices; and (iv) strengthening of functional currencies against the major trading currencies, which effectively lowered the import materials cost. The earnings before interest, tax, depreciation and amortisation margin rose by 5.4 percentage points to 19.9% in 2QFY2010, despite higher operating cost, up 38.5% y-o-y in 2QFY2010.
In domestic operations, total vehicle production swelled 30% y-o-y to 150,636 units in 2QFY2010. APM benefitted from a higher revenue contribution from the domestic interiors and plastics segment, up 67.6% y-o-y, that reflects the supply of interior parts (especially high-value items like car seats) to Perodua's Alza. Perodua will increase the production of Alza by 50% to 6,000 units per month in 2HCY2010. As for its overseas operations, although pre-tax profit fell by 12% y-o-y, revenue swelled by 60.3% y-o-y due to higher demand for new vehicles from Indonesia, up 78% y-o-y to 196,132 units in 2QFY2010.
Nissan Motors' (NM) plans a US$20 million expansion of its existing plant in Indonesia. Capacity is expected to double to 100,000 units per year while market share is set to expand from 4.4% to 10% by end-2012. We believe that APM would be the key beneficiary of NM Indonesia's aggressive expansion plans given its status as a Tier-1 supplier to NM Indonesia via its 50% stake in the JCI-Armada-APM consortium. It plans to commence production of the high volume with highly localised Nissan model by November 2010. Adding on, APM has committed about RM68 million to expand production facilities in Vietnam to support Tan Chong's expansion plan in Vietnam, which APM will eventually turn into its Nissan assembler and distributor for the Vietnamese market. ' Inter-Pacific Research, Aug 19
This article appeared in The Edge Financial Daily, August 20, 2010.
Company Name: APM AUTOMOTIVE HOLDINGS BHD
Research House: INTER PACIFIC
APM Automotive Holdings Bhd
(Aug 19, RM4.85)
Reiterate outperform at RM4.91 with revised target price RM5.70 (from RM5): Our FY2010F/11F earnings forecast remains intact. We continue to reiterate our 'outperform' recommendation with our revised target price of RM5.70 (RM5 previously) based on FY2010 forecast EPS of 54.7 sen and PER of 10.4 times.
We remain positive on APM given its solid free cash flow, attractive dividends and strong balance sheet amid a resilient net cash position currently at RM1.47 per share as at end-June. Key risks include: (i) slowdown of the economic recovery; (ii) lower-than-expected industry vehicle sales volumes; and (iii) weakening ringgit.
APM's annualised 1HFY2010 net profit of RM62.5 million is above our expectation and consensus, which accounts for 56.7% and 62.4% of our full-year forecast and market consensus respectively. As expected, APM declared an interim dividend of eight sen per share during the quarter under review.
APM posted a strong performance in 2QFY2010 with pre-tax profit up 114.7% year-on-year (y-o-y) to RM54.1 million which includes a one-time price adjustment amounting to RM7.6 million on the back of higher revenue, up 47.6% y-o-y. By excluding the adjustment, its pre-tax profit would soar by 84.5% y-o-y. The positive growth performance was attributed to: (i) higher production volume and economies of scale; (ii) +141.6% y-o-y surge in its domestic contribution; (iii) better selling prices; and (iv) strengthening of functional currencies against the major trading currencies, which effectively lowered the import materials cost. The earnings before interest, tax, depreciation and amortisation margin rose by 5.4 percentage points to 19.9% in 2QFY2010, despite higher operating cost, up 38.5% y-o-y in 2QFY2010.
In domestic operations, total vehicle production swelled 30% y-o-y to 150,636 units in 2QFY2010. APM benefitted from a higher revenue contribution from the domestic interiors and plastics segment, up 67.6% y-o-y, that reflects the supply of interior parts (especially high-value items like car seats) to Perodua's Alza. Perodua will increase the production of Alza by 50% to 6,000 units per month in 2HCY2010. As for its overseas operations, although pre-tax profit fell by 12% y-o-y, revenue swelled by 60.3% y-o-y due to higher demand for new vehicles from Indonesia, up 78% y-o-y to 196,132 units in 2QFY2010.
Nissan Motors' (NM) plans a US$20 million expansion of its existing plant in Indonesia. Capacity is expected to double to 100,000 units per year while market share is set to expand from 4.4% to 10% by end-2012. We believe that APM would be the key beneficiary of NM Indonesia's aggressive expansion plans given its status as a Tier-1 supplier to NM Indonesia via its 50% stake in the JCI-Armada-APM consortium. It plans to commence production of the high volume with highly localised Nissan model by November 2010. Adding on, APM has committed about RM68 million to expand production facilities in Vietnam to support Tan Chong's expansion plan in Vietnam, which APM will eventually turn into its Nissan assembler and distributor for the Vietnamese market. ' Inter-Pacific Research, Aug 19
This article appeared in The Edge Financial Daily, August 20, 2010.
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