Period  2Q13/1H13

Actual vs. Expectations  The group reported 2Q13 net profit (NP) of RM37.2m (26% YoY; 13% QoQ), bringing its 1H13 NP to RM69.9m (-1% YoY). The results came in within expectations, making up 46% and 45% of our and the consensus full-year forecasts, respectively.

Dividends  As expected, a 3.0 sen single tier dividend was declared for the quarter under review.

Key Results Highlights  YoY, the 1H13 revenue grew by 3% driven by higher motor vehicles sales (+5%) with sales of Perodua vehicles (+11%) taking the lead. On the flipside, 1H13 EBIT decreased by 33% due to lower EBIT margin (-1.4ppts to 2.8%) on account of the stiff price competition in motor vehicles trading and auto parts manufacturing. Despite lower EBIT, 1H13 PBT merely decreased by 1% as the impact from EBIT was buffered by the higher growth in share of results of associates (+21%) amidst better vehicle sales.

 QoQ, the 2Q13 revenue declined by 6% mainly due to lower vehicle sales of continental makes from Federal Auto Group (-13%), which distributes the Volvo, Volkswagen & Mitsubishi vehicles. Despite the weaker top line growth, the group PBT surged by 12%, lifted by the higher EBIT margin (+0.7ppts) on the easing of price competition coupled with the higher growth seen at the share of associates’ results (+8%).

Outlook  We believe the group will continue to operate in a tough operating environment arising from intense competition in both its divisions, thus leading to cutthroat margins.

Nonetheless, higher contribution from associates could act as a buffer to cushion the impact.

Change to Forecasts   No changes to our FY13 and FY14 forecasts for now pending further details from the briefing today.

Rating   Maintain UNDERPERFORM (under review)

Valuation  Our target price is maintained at RM3.69. This is based on 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