Results

Below Expectations - Reported RM73.7m core earnings in 4Q13 and RM289.2m in FY13, achieved 92.7% of HLIB’s expectations and 88.5% of consensus. In FY14, Nissan is at a disadvantage position due to lack of highly demanded model launch (vis-à-vis new Toyota Vios and Honda City).

Deviations

Lower than expected EBITDA margins and associate contributions, as well as higher than expected net finance expenses.

Dividends

Proposed final gross dividend of 6 sen minus 25% tax. A total of 21 sen dividend announced for FY13, in line with our estimation.

Highlights

FY13 revenue increased by 27.2% driven by strong Almera (launched end Oct 2012) sales for the year. Out of total domestic sales of 53,200 units in FY13, 29,397 units (55.3%) were attributed to Almera alone.

Consequently, overall FY13 EBITDA margin improved due to the high sales volume (lower fixed cost/unit) despite continued losses from its oversea ventures.

Financial division contributed lower EBITDA at RM41.1m (- 13.0% yoy) due to lower revenue and higher operation cost.

Other operations (inclusive of Asean ventures) reported EBITDA losses of RM12.9m in FY13, which we suspect mainly due to the Vietnam ventures. We understand that Vietnam sales were behind management’s target, indicating low revenue generation with high operational cost.

We expect stiff competitions within the automotive sector in FY14. Nissan targeted to (at least) maintain sales volume in 2014, banking on new model Teana, Sylphy and CKD Serena Hybrid. The weakened RM will also impact TCM’s margin in FY14.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Slow market development in Indochina, particularly Vietnam.
• Global automotive supply chain disruption.

Forecasts

After fine-tuning our model, we cut FY14-15 earnings by 5.0%. We introduced FY15 earnings at RM371.7m.

Rating

Hold

Positives –

• Strategic expansion plan into fast growing Indochina market.
• Increase plant utilization from contract assembly.

Negatives –

• Tightening of bank’s lending rules.
• Competitive domestic market.
• Underdeveloped Indochina’s automotive market.
• Weakening of MYR.
• Illiquid counter.

Valuation

Maintained Hold with lower Target Price of RM5.74 (from RM6.04) based on 11x FY15 PE, after we cut earnings.

Source: Hong Leong Investment Bank Research- 27 Feb 2014