Results

• In line - Reported core net profit of RM186.0m in 4Q14 and RM791.5m in FY14, in line with HLIB’s RM795.2m (99.5%), but below consensus RM867.667m (91.2%).

Deviations

• None.

Dividends

• Announced third interim single tier dividend of 16 sen/share. Total dividend declared for FY14 was 41sen/share, below our expectation of 45sen/share.

Highlights

• Automotive: FY14 revenue improved by 7.5% yoy due to higher Toyota sales volume (Vios was only launched in 4Q13 and Altis in 1Q14), contributing to higher PBT contributions yoy. The automotive industry is expected to face tough competitions in 2015 due to weakened consumer sentiment and GST uncertainties. Toyota is expected to face margin squeeze in 2015, which may be partially offset by stronger contributions of Perodua.

• Equipment: FY14 revenue improved 3.7% yoy attributed to improved sales of industry equipment, which enhanced the PBT by 11.0% yoy. The plummet in commodity prices is expected to affect new orders for equipment in 2015.

• Oil & Gas: FY14 revenue and PBT improved 37.7% yoy and 38.4% yoy from new contributions of new jack-up rigs (Naga 4, 5 and 6) and higher charter rates. The current slump in global oil prices had resulted in slightly lower rates and significant drop in new tenders but should be partly mitigated by shortage of local-owned rigs.

• Manufacturing & Engineering: FY14 reported PBT of RM15.7m vs. LBT of RM39.2m in FY13. Due to higher margins in China operation and impairment charges in FY13. The segment is expected to remain tough in 2015

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Global automotive supply chain disruption.
• Appreciation of US$.
• Plunge in crude oil price and slowdown in O&G exploration.

Forecasts

• We have fine-tuned our model by adjusting earnings for FY15-16 by +0.1% and -7.4% respectively. We introduce FY17 earnings at RM1.0bn.

Rating

HOLD

Positives

• 1) Control largest market share of Malaysia TIVwith leading brand - Toyota, Lexus and Perodua; 2) Strong growth of Oil & Gas division; and 3) Expanding reach of Manufacturing & Engineering division into fast growing China and India.

Negatives

• 1) Slump in crude oil prices affecting demandand charter rates for jack-up rigs; 2) Tightening of bank’s lending rules; and 3) Intense competition from rival automotive marques.

Valuation

• We roll forward our SOP valuation into FY16, with higher target price of RM10.75 (from RM10.60).

Source: Hong Leong Investment Bank Research - 27 Feb 2015