Results

• Within Expectations - Reported RM13.9m core earnings in 4Q15 and RM54.4m in FY15, achieved 95.0% of HLIB’s expectations, but below consensus of RM77.7m (70.0%).

Deviations

• None.

Dividends

• Proposed final single tier dividend of 3.0sen. Total dividend for FY15 is 5.0sen or 2.1% net dividend yield.

Highlights

• 4Q15 YoY: Revenue improved by 19.5% yoy with new XTrail contribution and higher car sales deliveries. EBITDA margin improved on improved costs control and higher sales volume, offsetting the RM depreciation impact.

• 4Q15 QoQ: Revenue improved by 10% qoq on seasonal stronger 4Q with ongoing promotional campaigns. EBITDA margin sustained mainly on implemented cost control and higher sales volume.

• FY15 YoY: Revenue increased by 20.1% yoy in tandem with higher sales volume and improved revenue mix (new contribution from X-Trail). However, margins was affected by higher input costs (US$ strengthening) as well as ongoing sales campaigns to boost sales.

• Outlook for 2016: We expect continued stiff competition within the automotive sector in 2016, given still weak consumer sentiments (higher cost of livings and economic uncertainties). The ongoing tight lending guidelines will also affect loan approval processes. Strong US$ leads to higher import cost for CKD components, which may affect TCM margins. TCM lack of new Nissan models for FY16 and new models from national marques post treats to TCM sales.

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

• Cut earnings for FY16 and FY17 by 27.7% and 26.1% on lower car sales and margins impact. Introduced FY18 earnings at RM139m.

Rating

SELL

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.
• Underdevel oped Indochina’s automotive market.
• Weakening of MYR.

Valuation

• Post adjustments to our model, we maintain SELL with lower Target Price of RM2.16 (from RM2.18) based on 0.5x P/B.

Source: Hong Leong Investment Bank Research - 24 Feb 2016