Period  4Q13/FY13

Actual vs. Expectations Below expectations. The group reported 4Q13 PATAMI of RM67.8m, taking its FY13 PATAMI to RM251.0m. Excluding the exceptional item of a one-off provision of Nissan Vietnam Co. Ltd (NVL) additional import duties amounting to RM56m, the FY13 core PATAMI of RM307.0m accounted for 94% of both our estimates and the consensus, respectively. The main negative deviation was the lowerthan-expected vehicle sales.

Dividends  Above expectations. A final single-tier dividend of 6.0 sen was declared, bringing the YTD DPS to 21.0 sen, higher than our forecasts and consensus of 13.0 sen and 14.7 sen respectively. Netting off the 25% tax, the net DPS of 15.8 sen represents 41% of dividend payout ratio and 2.9% net dividend yield.

Key Result Highlights YoY, the FY13 revenue grew by 27% mainly driven by higher vehicle sales volume on the back of the new launching for the Nissan Almera, Serena S-Hybrid and Grand Livina. With that, Nissan retained its No.2 position in the non-national car segment taking 8% of the industry volume of 656k units in 2013. Positively, EBIT improved by leaps and bounds with a 54% growth on the back of higher EBIT margin of 7.5% (+1.3ppts) despite the impact from the one-off additional import duties of RM56m. Delving deeper, the higher EBIT margin was driven by the weakening of Yen as well as the better economies of scale which translated into higher operational efficiency.

 QoQ, the 4Q13 revenue increased by 7%, driven by the resilient growth in Automotive and financial services segments on the back of higher vehicles sales volume. However, the group EBITDA only inched up 2% to register at RM136.7m (vs. RM133.8m in 3Q13 if we were to exclude the one-off adjustment of RM56m NVL tax provision in the 3Q13) on a lower EBITDA margin of 10.1% (-0.5ppts). We reckon this could be due to the higher discounts given during the year-end sales campaign.

Outlook  We concurred with the group’s view that 2014 could be challenging on several fronts, namely a weaker RM resulting in higher imported CKD costs, intense domestic competition, higher operating costs from marketing and administering a wider geographical footprint.

 Of noteworthy, the group has also recognised revaluation surplus of RM620.4m from its PPE and investment properties which has in turn resulted in an increase in net assets per share as at 31 Dec 2013 by 95sen.

Change to Forecasts Post results, we have reduced our FY14 PATAMI forecasts by 13% to account for: (i) lower vehicle sales (from 66k to 59k), (ii) lower EBITDA margin of 9.3% from 9.5% after taking into higher marketing and administration costs. We also introduced our FY15 PATAMI forecast of RM322.5m.

Rating Maintain OUTPERFORM as value has emerged following the recent share price weakness.

Valuation  Post our earnings revision, our TP is reduced to RM6.57 (from RM7.70) based on a targeted PER multiple of 13.9x (being the +1SD above its 3-year average forward PER).

Risks to Our Call  Weak consumer sentiments.

 Unfavourable forex trends (weakening of the Ringgit against the USD and the JPY), which may adversely compress margin.

Source: Kenanga