Period  4Q13/FY13

Actual vs. Expectations Below expectations. The group reported a 4Q13 PATAMI of RM33.5m (+10% YoY; -5% QoQ), taking its FY13 PATAMI to RM138.6m (+2% YoY) which only made up 94% and 95% of ours and the consensus full-year NP forecasts, respectively. The main negative deviation was the lower-than expected sales of continental makes, which was affected by new launches from competitors.

Dividends  As expected, a second interim tax exempted dividend of 3.0 sen was declared under the quarter reviewed. All in, YTD DPS of 6.0 sen represented c.17% of dividend payout ratio which also implies c.2% net dividend yield.

Key Result Highlights YoY, the group recorded a flat FY13 revenue growth with pallid sales seen in all segments. On a closer look at its motor vehicles trading segment, revenue contribution (+9%) from Perodua car sales was mainly erased by lower sales of continental makes at Federal Auto (-14%). Meanwhile, FY13 EBIT decreased by 24% with lower EBIT margin seen (-1ppts to 3.1%) due to: (i) the cut throat margins (0.9%, -0.7ppts) in the motor vehicles trading amidst stiff competition and (ii) start-up costs for the new alloy wheel plant. Despite the lower EBIT, FY13 PBT merely decreased by 1% as the impact from EBIT was arrested by the higher growth in share of results of associates (+12%) amidst the better vehicle sales.

 QoQ, the 4Q13 revenue declined by 8% mainly due to lower vehicle sales of continental makes (Volvo and Volkswagen) from Federal Auto Group (-6%). Although Group EBIT recorded a robust growth of 42% mainly driven by the favourable Yen exchange rates, PBT decreased 7% dragged down by the weaker contribution from share of results of associates (-28%) amidst pallid Perodua and Hino vehicles 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 for now pending further details from the briefing today.

Rating Maintain UNDERPERFORM

Valuation  Our target price maintained at RM3.66 for now. This is based on 8.7x FY14 EPS (at a +1.0 SD level above the 5-year forward average PER).

Risks to Our Call  Better-than-expected sales volume.

Source: Kenanga