APM reported a core net loss of RM4m in 1Q20 (vs. 1Q19 core net profit of RM8m). The underperformance was largely due to weaker revenue and margins, a result of the Covid-19 Movement Control Order (MCO) induced shutdown. We deem the results below our expectations and we expect the sequential results will also be weaker from the extended MCO from April to early May. As such, we cut our 2020-22E EPS by 14-20%, and lower our TP to RM1.70. Reaffirm HOLD.

Weakest Quarterly Results Due to MCO

APM suffered a huge blow from the Covid-19 pandemic – 1Q20 core net loss of RM4m (vs. 1Q19 core net profit of RM8m), its weakest quarterly results in our records due to: i) weaker revenue, ii) weaker EBITDA margins and iii) higher effective tax rate. APM’s 1Q20 revenue declined by 28% qoq to RM280m, as the Malaysia business operations were halted and export activities were significantly reduced during the implementation of the Covid-19 MCO period. Notably, 1Q20 margins were squeezed by 3.7ppts qoq to 5.7%, impacted by the lower revenue and additional sanitisation costs from implementation of social distancing, in our view.

2Q20 Should be Sequentially Weaker; 2H20 to Recover on Better TIV

We think APM’s 2Q20 earnings may face a similar fate as 1Q20, considering most of the business operations were still not allowed to operate between April to early May. Looking past 2Q20 results, we think APM’s 2H20 profitability should recover, as the group slowly ramps up production to cater for the better car sales from the tax incentive initiated by the government.

Maintain Hold With Lower TP of RM1.70

Given the results shortfall, we cut our 2020-22E EPS by 14-20%. Post earnings revision, we lower our TP to RM1.70 (from RM1.90) based on an unchanged 17x PER (-1SD 6-year mean forward PER). The group’s solid 1Q20 net cash position of RM261m should support APM’s share price, we believe. Reaffirm HOLD. Key upside/downside risks to our call on APM: (i) higher-/lower-than-expected vehicle production volume, ii) higher-/lowerthan-expected export sales, (iii) an increase/decline in commodity prices, and (iv) fluctuation of Ringgit (vs US$)

Source: Affin Hwang Research - 30 Jun 2020