Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
APM Automotive Holdings Bhd
(June 29, RM4.78)
Maintain buy at RM4.79 with fair value of RM6.60: We re-affirm our 'buy' rating on APM Automotive with an unchanged fair value of RM6.60, following Nissan's announcement of its mid-term business plan. Our valuation continues to peg APM at an ex-cash FY11F price-earnings ratio of seven times.
Nissan recently announced a mid-term business plan, called 'Nissan 88', for 2011 to 2016. The plan focuses on Nissan: (i) achieving an 8% global market share and an 8% operating margin by 2016; (ii) delivering on average an all-new vehicle every six weeks for six years.
Nissan's global portfolio will have 66 vehicles covering 92% of all markets and segments; and (iii) dedicated new cars and light commercial vehicles for the entry-level segments and emerging markets.
We gather that under Nissan 88, the Asean Five ' Indonesia, Thailand, Malaysia, Vietnam and the Philippines ' are expected to add half-a-million new vehicles by 2016, a near tripling of Nissan's sales in Asean last year.
We see APM as a potential beneficiary of Nissan's aggressive expansion plans (in terms of new models and market share expansion) by virtue of parts supply to Nissan and having established presence in Malaysia, Indonesia, Vietnam and possibly Thailand in the near term. In Indonesia, APM is a Tier-1 supplier to Nissan Motor Indonesia via its 30% stake in the PT Armada-Johnson'APM consortium. In Vietnam, APM should commence supplies to Nissan by 4Q12.
The target by Nissan to achieve an 8% operating margin in particular should involve deepening local contents of its cars. Ironically, Nissan's mid-term plan sets ambitious targets for almost every major global market, except Japan.
Nissan indicated that it would remain committed to a domestic production of'' one million vehicles a year, but increases in output and sales would come from elsewhere outside Japan and Europe.
APM remains our top pick in the auto sector. The company trades at a 30% discount to the sector while net cash accounts for a third of market cap, with a potential dividend step-up to 40 sen per share from 2011F/13F by virtue of: (i) expiring tax credit of RM90 million in 2013; (ii) idle cash hoard of RM347 million which drags on return on equity.
We like APM for the structural elevation in its earnings prospects stemming from: (i) regional expansion into Thailand where vehicle production is three times the size of Malaysia's and Ford as a potential major customer, which owns the second largest plant in Thailand with a capacity of 450,000 units per year by 2012 ' three-quarters the size of Malaysia's total industry volume; (ii) deepening localisation which means a step-up in revenue per car set from new model launches.
The new Myvi, for example, has resulted in 20% to 100% increases in revenue per car set for parts suppliers; (iii) influx of local assembly by foreign marques like Peugeot and VW which means customer base expansion for parts players. ' AmResearch, June 29
This article appeared in The Edge Financial Daily, June 30, 2011.
Company Name: APM AUTOMOTIVE HOLDINGS BHD
| Research House: AMMB | Price Call: BUY | Target Price: 6.60 |
APM Automotive Holdings Bhd
(June 29, RM4.78)
Maintain buy at RM4.79 with fair value of RM6.60: We re-affirm our 'buy' rating on APM Automotive with an unchanged fair value of RM6.60, following Nissan's announcement of its mid-term business plan. Our valuation continues to peg APM at an ex-cash FY11F price-earnings ratio of seven times.
Nissan recently announced a mid-term business plan, called 'Nissan 88', for 2011 to 2016. The plan focuses on Nissan: (i) achieving an 8% global market share and an 8% operating margin by 2016; (ii) delivering on average an all-new vehicle every six weeks for six years.
Nissan's global portfolio will have 66 vehicles covering 92% of all markets and segments; and (iii) dedicated new cars and light commercial vehicles for the entry-level segments and emerging markets.
We gather that under Nissan 88, the Asean Five ' Indonesia, Thailand, Malaysia, Vietnam and the Philippines ' are expected to add half-a-million new vehicles by 2016, a near tripling of Nissan's sales in Asean last year.
We see APM as a potential beneficiary of Nissan's aggressive expansion plans (in terms of new models and market share expansion) by virtue of parts supply to Nissan and having established presence in Malaysia, Indonesia, Vietnam and possibly Thailand in the near term. In Indonesia, APM is a Tier-1 supplier to Nissan Motor Indonesia via its 30% stake in the PT Armada-Johnson'APM consortium. In Vietnam, APM should commence supplies to Nissan by 4Q12.
The target by Nissan to achieve an 8% operating margin in particular should involve deepening local contents of its cars. Ironically, Nissan's mid-term plan sets ambitious targets for almost every major global market, except Japan.
Nissan indicated that it would remain committed to a domestic production of'' one million vehicles a year, but increases in output and sales would come from elsewhere outside Japan and Europe.
APM remains our top pick in the auto sector. The company trades at a 30% discount to the sector while net cash accounts for a third of market cap, with a potential dividend step-up to 40 sen per share from 2011F/13F by virtue of: (i) expiring tax credit of RM90 million in 2013; (ii) idle cash hoard of RM347 million which drags on return on equity.
We like APM for the structural elevation in its earnings prospects stemming from: (i) regional expansion into Thailand where vehicle production is three times the size of Malaysia's and Ford as a potential major customer, which owns the second largest plant in Thailand with a capacity of 450,000 units per year by 2012 ' three-quarters the size of Malaysia's total industry volume; (ii) deepening localisation which means a step-up in revenue per car set from new model launches.
The new Myvi, for example, has resulted in 20% to 100% increases in revenue per car set for parts suppliers; (iii) influx of local assembly by foreign marques like Peugeot and VW which means customer base expansion for parts players. ' AmResearch, June 29
This article appeared in The Edge Financial Daily, June 30, 2011.
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