Period     1QFY13

Actual vs. Expectations    The 1QFY13 net profit of RM32.8m (-20% YoY; +11% QoQ) came in at 21-22% of ours and the consensus full-year net profit forecasts. We consider the results to be within our expectations as we expect the earnings to pick up in the subsequent quarters after the general uncertainty was lifted post the recently concluded general elections in the country.  

Dividends     No dividend was declared in the quarter. 

Key Results Highlights     QoQ,  the 1QFY13 revenues rose 18.9% mainly due to higher commercial vehicle sales, i.e. from the Daihatsu and Hino trucks (+19.2%) coupled with the better sales performance by higher passenger vehicle sales from Federal Auto Group (+4.2%), which distributes the Mitsubishi, Perodua and Volkswagen brands. The share of results of the associates also rose 10.7% contributed mainly from improved vehicle sales driven by Perodua and Hino trucks, which rose 7.2% and 7.6% respectively. Despite the solid top line growth, 1QFY13 PBT fell 1% due to: 1) lower margins in the motor division as a result of a more intense competition and 2) lower volume sales from the major car makers as well as price reductions in vehicles sold. However, thanks to the weakening Yen and higher vehicle sales, its 23.6%-owned unlisted associate, Perodua, managed to mitigate the decline in the overall group PBT. The 1QFY13 net profit, however, rose to RM32.8m, up by 11% due to a low effective tax rate of 10.9%.

YoY,  the 1QFY13 revenue grew 13% underpinned by higher passenger vehicle sales from Federal Auto (+7.5%), and from Perodua (+17%) but these were negated by lower sales of Daihatsu and Hino trucks (-16.5%). The Auto parts manufacturing division revenue also declined by 9.3% due to lower volume sales from the major car makers. Despite the improved sales, the PBT fell sharply by 17% no thanks to lower margins recorded, which were hurt by the intense competition and price reduction in both the divisions.

On the overall, the total group vehicle sales rose 11.7% in 1QFY13, trailing the market, which rose 13.8% YoY.

Outlook    Looking ahead, the group will continue to operate in a tough operating environment arising from intense competition in both its divisions leading to cut-throat margins. Not helping either is that car sales have softened recently as consumers held back in anticipation of the lowering of car prices. 

The construction of the group’s new alloy wheel plant has been completed and it will start its commercial production by 2Q2013.  

Change to Forecasts    No changes to our FY13 and FY14 forecasts. 

Rating  Maintain UNDERPERFORM

Valuation     Our target price has been raised from RM3.35 to RM3.69 as we rolled forward our 12-month TP valuation from 9.0x FY13 EPS to 9.0x FY14 EPS (at a +1.0 SD level above the 5-year forward average PER). 

Risks    Better than expected volume sales.

Source: Kenanga