APM reported a better 3Q17 earnings of RM13.9m (+310% qoq), bringing the Group’s cumulative 9M17 core earnings to RM27.8m (- 36% yoy) which was above ours but within street expectation at 78.2% and 74.5% of FY17 forecasts respectively. The better-than-expected set of results was largely contributed by higher sales from the OEMs and sale of leaf springs. We are expecting a slight improvement in earnings on the back of a stronger RM and improving consumer sentiment moving forward. Therefore, we are upgrading our recommendation to HOLD with a higher TP of RM3.96 based on 14x PE on FY18 EPS.

3Q17 Earnings Rebounds Sequentially

Excluding various one-offs, APM registered a 3Q17 core net profit of RM13.9m (+310.7% qoq, -19.3% yoy) in line with higher revenue derived from: 1) 3Q17 TIV rose 7.3% qoq due to shorter working days in 2Q17, 2) higher sales of leaf springs in Indonesia operations; and 3) resumption of coach seat operations in Australia. However, APM’s 3Q17 core earnings was still down by 19.3% yoy against preceding year’s results due to lower production volume and higher imported raw material costs, which continued to weigh on APM due to a stronger USD/RM.

Segmental Analysis

Revenue for the suspension segment ascended from RM51.7m in 3Q16 to RM54.1m to in 3Q17 due to higher export sales for leaf spring products. The interior & plastics segment results fell by 12.5% yoy to RM186.3m in 3Q17 from RM213.0m in 2Q17, affected by lower demand of vehicle seats from OEM customers. The earnings for the electrical & heat exchange segment was also bogged down by similar trends, declining 7.4% yoy against the 3Q16 results.

Upgrade to HOLD With Higher TP of RM3.96

We updated our earnings model factoring in a higher revenue estimates and a stronger RM, we tweaked our FY17-19E earnings by 2.7%, 2.4% and 1.0% accordingly. We upgrade our rating to HOLD with a higher TP of RM3.96 (from RM3.00), based on higher 14x PE, in line with its 5-year average forward PE, on FY18E EPS.

Source: Affin Hwang Research - 21 Nov 2017