Company Background. APM Automotive Holdings (APM) designs, manufactures, assembles and produces automotive and mobility components in Malaysia. It operates in 5 core divisions: (i) suspension, (ii) interior & plastics, (iii) electrical & heat exchange, (iv) marketing, and (v) Indonesian operations. The group’s business includes assembling and producing seat systems, PVC body side moulding, electrical components, coil springs, shock absorbers and tapered leaf springs. APM is one of Malaysia’s largest automotive parts suppliers with a growing presence in USA, Australia, Netherlands, United Kingdom and ASEAN region.

Prospects. (i) Focus on R&D to explore the viability of new suspension system technologies, aiming to meet the growing demand for enhanced safety/efficiency/interconnectivity/ride comfort, (ii) Driven by strong demand from original equipment manufacturers (OEM) and a recovering export segment, the group aims to boost export sales and establish a significant presence in Americas, Pacific region and Europe, (iii) Penetrate the electric vehicle (EV) sector, especially in the design & development of EV battery management systems and explore potential EV-related opportunities, and (iv) Expand the replacement market footprint and product range through strategic partnerships, focusing on collaboration with EV part suppliers to capture a share of the growing EV market in Indonesia.

Financial Performance. In 2QFY24, APM reported higher revenue of RM453.6mil (+5.4% YoY) with a PAT of RM9.8mil (+3.5x YoY). This was primarily driven by strong demand from the OEM segment, the commencement of supply for newly-launched models in Malaysia and growth in export sales due to improved market conditions and favourable exchange rates.

Valuation. APM is trading at an attractive 7.6x trailing P/E, which is lower than its 5-year historical average of 11.3x and Bursa Industrial Production Index’s 22.2x currently. As a comparison, MCE Holdings, an OEM specialising in the full spectrum of design, manufacture and supply of automotive electronics & mechatronic parts, trades at a higher trailing P/E of 11.4x.

Technical Analysis. We believe buying interest on APM may have returned after recovering above its 20-day and 50-day EMAs a few sessions ago. The stock pushing near a 52-week high and supported by rising EMAs likely indicates that upward momentum may be picking up. A bullish bias may emerge above the RM2.90 level with stop-loss set at RM2.63, below the 5 Aug low. Towards the upside, near-term resistance level is seen at RM3.40, followed by RM3.60.

Source: AmInvest Research - 2 Sept 2024