Period  3QFY13/9MFY13

Actual vs. Expectations Within expectations. The group reported a 3QFY13 PATAMI of RM35.1m (-1% YoY; -6% QoQ), taking its 9MFY13 PATAMI to RM105.0m (-1% YoY) which made up of 71% and 70% of ours and the consensus full-year NP forecasts.

Dividends  As expected, no dividend was declared under the quarter reviewed.

Key Results Highlights YoY, the 9M13 revenue came in flat at 1% growth as growth in motor vehicles trading (+2%, mainly driven by higher Perodua car sales) was erased by lower revenue in Auto parts manufacturing (-5%, due to lower deliveries of tyre assembly). Meanwhile, 9M13 EBIT decreased by 33% with the lower EBIT margin seen (-1.3ppts to 2.8%) due to (i) the cut-throat margins (0.7%, -0.8ppts) in the motor vehicles trading amidst stiff competition and (ii) start-up costs for the new alloy wheel plant. Despite lower EBIT, 9M PBT merely decreased by 1% as the impact from EBIT was negated by the higher growth in share of results of associates (+21%) amidst the better vehicle sales.

 QoQ, the 3QFY13 revenue declined by 4% mainly due to lower vehicle sales of continental makes from Federal Auto Group (-5%), and Daihatsu trucks from Daihatsu Group (-37%). Similarly, the group PBT declined by 5% aggravated by lower contribution from the associated company – Perodua (-2%, due to lower vehicle sales).

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 share of associates’ results could act as a buffer to cushion the impact.

Change to Forecasts No changes to our FY13 and FY14 forecasts at this juncture.

Rating Maintain UNDERPERFORM

Valuation  Our target price 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 to our Call  Better than expected volume sales.

Source: Kenanga