' We re-affirm our BUY rating on APM Automotive (APM) at unchangedfair value of RM6.50/share following the release of its 4Q11 results lastFriday. Our valuation continues to peg APM at 7x ex-cash FY12F earnings. 

' APM reported net profit of RM37mil, which brought full yearcore earnings to RM127mil. This was within our estimates but was way ahead ofconsensus accounting for 100% and 111% of full year estimates respectively.APM's FY11F core earnings trajectory is in fact a year ahead, meeting evenconsensus' FY12F projection of RM127mil.

' More importantly, APM surprised the market with its dividends(and by that, vindicating our thesis of a step-up in dividend payout over thenext 3 years). APM announced a final dividend of 12sen/share, and on top ofthat, a special dividend of 10sen/share. These brought total FY11 dividends to32sen/share (a whopping 60% increase against FY10 total dividend of20sen/share). This brings dividend yield to an attractive 7%. Management guidesfor more active capital management going forward.

' A strong balance sheet and inefficient capital management inthe past suggests further step-up in dividends. To fund potential equityraising at Warisan TC (APM's sister company) we believe TCC (APM's holdingcompany) is shifting up cash from APM given: (1) APM's idle cash hoard(RM365mil) which puts a drag on ROE; positions it best for cash extraction byTCC; (2) Unutilized tax credit of RM90mil expiring in 2013. We project higherdividends for FY12F at 40sen/share (9% div yield). 

' However, tighter credit approvals since January could posedownside earnings risk ' though we doubt this will have any material impact ondividend payout. We estimate that every 1% reduction in FY12F TIV will impactearnings by 1.4%.

' Notwithstanding this, recently secured JV with IAC (InternationalAutomotive Components) allows APM access to the huge Thai auto part market. Weestimate revenue of circa RM107mil/annum from the Thai JV and RM63mil/annumfrom the Malaysian JV. At 10% net margin, we expect both JVs to driveRM8mil/annum incremental earnings to APM, (net of IAC's 60% stake in the ThaiJV and 40% stake in the Malaysian JV) ' which could raise FY12F-13F earnings by4%-5%.

' At just 6x, FY12F earnings and 19% earnings CAGR over FY11F-13F,we believe APM is positioned as an attractive play into ASEAN's TIV growthmomentum. Hirotako's GO at 10x PE is at a 70% premium to APM, reflecting increasingappetite for auto parts players as a proxy to the influx of foreign marquesinto the region.

Source: AmeSecurities