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APM Automotive is involved in manufacturing and trading of automotive parts, which are mainly suspension, interior & plastic and electrical parts & air-conditioner system. Its major clients are Toyota, Volkswagen, Ford and Honda.

Among the company’s activity, manufacturing of interior and plastics part makes up more than half of the company revenue, followed by manufacturing of electrical parts & air-conditioner system and suspension parts.

Being a local company, APM is still largely dependent on the performance of local automotive industry. However, the company has ventured into foreign market recently to create a larger source of revenue. As of financial 2015, the overseas market has contributed about 10% of the revenue to the company. The company has also expanded aggressively for the past few years by setting up manufacturing facilities in Vietnam, Indonesia, Australia and a distribution warehouse in United States (US).

Due to the weak consumer sentiment in Malaysia and the lower demand for suspension parts due to cut back in East Malaysia logging activities, the company profit has been slashed down. However, we believe that the low household car ownership in both Indonesia and Vietnam will continue to contribute more growth potential to APM in the near future.

The below is an update of APM market expansion progress

·         Malaysia: A new manufacturing plant in Kulim to be ready by end 2016

·         Australia: Acquired a locomotive seat manufacturing business which enables the company to provide seat installation and refurbishment service to local bus operator.

·         Europe: Acquired a Netherlands company who expertise in developing suspension product. It also helps APM to increase its exposure to the Europe Market.

·         Thailand: Construction of a production plant is ongoing

·         Korea: Formed a joint venture with Tinnos Inc. to develop automotive parts that could tap on Internet of Things Era

·         Indonesia: A new plant manufacturing suspension leaf spring scheduled to be operational in 2H 2016.

Although APM is facing a slower profit due to weak market sentiment and higher pre-operating start-up cost, APM continues to produce healthy cash flows and distributing generous dividend. Along with its strong balance sheet and good cash conversion cycle of 85 days, the company has taken an aggressive stance in expanding overseas presence via acquisition and capacity building. This is in line with the group’s transformation plan to strive for a balance contribution of domestic and overseas revenue.

Conclusion:

o   A healthy company with strong balance sheet and consistent dividend.

o   Aggressive expansion plan with bright growth prospect.

o   Currently facing a downturn in automobile industry due to weak consumer sentiment and economic environment.

Positive:

§  Great growth opportunities from overseas market

§  Strong balance sheet to withstand industry downturn

§  Aggressive expansion plan, preparing for the next cyclical uptake as economic conditions improve.

§  Good proxy to participate in Vietnam and Indonesia secular growth.

§  Asean Trade Agreement may cut import tariff to zero by year 2018.

Negative:

§  Pre-operating start-up cost in new manufacturing plant may drag company earnings.

§  Cyclical business which is highly susceptible to economy condition

§  Emergent of taxi hailing apps (Grab, Uber) may reduce reliance on private vehicles.

§  New public transportation system rolling up in the next few years.

§  Fuel subsidy reformation plan in Malaysia may reduce car usage if oil price rebound in the future.