APM Automotive (APM) reported a good set of results – 1Q18 core net profit grew by 62.1% yoy to RM17.1m led by higher revenue contribution from the interior and plastic division (+11.1% yoy) and a better EBITDA margin (+1.7ppt to 12.8%) from a favourable product mix and improvement in plant utilisation. The results were broadly within expectations. We maintain our HOLD rating with an unchanged target price of RM3.52. No dividends were declared for the quarter.

Strong 1Q18 Earnings on Higher Revenue; Within Expectations

APM reported a higher 1Q18 core net profit of RM17.1m (+62% yoy) on 8.9% revenue growth, driven by higher contribution from the interior and plastic (+11.1% yoy) and suspension (+42.1% yoy) segments. The 1Q18 EBITDA margin rose 1.7% ppts to 12.8% on the higher plant utilisation and favourable product mix. All in, the results were broadly within market and our expectations. While the group’s 1Q18 core net profit accounted for 34- 37% of consensus and our full-year forecasts, we expect weaker associate earnings and normalisation of the EBITDA margin (to 10-11%) over 2Q- 4Q18.

Sequentially, Core Earnings Surged 132% From Low Base

Sequentially, APM’s 1Q18 earnings were higher by 132%, thanks to a favourable product mix mainly from the interior & plastic segment (+26.1% qoq), despite the slight dip in revenue growth by 5.3% qoq.

Maintain HOLD and TP of RM3.52

We maintain our HOLD rating with an unchanged 12-month price target of RM3.52, based on 14.6x FY19E PER. APM’s 2019E PER of 14.9x is above the small cap auto peer average of 13.5x, but looks fair considering its solid 1Q18 cash position of RM264m and dividend yield of 4%, on our estimates. Key upside/downside risks: (i) higher/lower vehicle sales and (ii) a sharp plunge/spike in commodity prices (ie, aluminium and steel).

Source: Affin Hwang Research - 17 May 2018