Period  4Q14/FY14

Actual vs. Expectations The reported FY14 net profit of RM456.8m (-20% YoY) appears to be above our forecast and consensus full-year estimates. However, excluding a one-off gain from bargain purchase (RM111.7m) and gains from disposal of an insurance arm and Johor land sales (RM83.1m), the core net profit actually underperformed by 20-24%, at RM262m or only 80% and 86% of our forecast and consensus fullyear forecasts, respectively. The variance from our forecast is mainly due to losses suffered at the automotive division of which we believe is due to Lotus.

Dividends  A final single tier dividend of 4.5 sen was proposed.

Key Result Highlights YoY, FY14 revenue rose 8% to RM14b due to higher segmental contributions from automotive (+6%), services (+4%) and property division (+70%) despite its small base. The higher revenue from automotive segment was due to higher revenue attributed to the progress of AV8 project and inclusion of CTRM and higher vehicle sales from Audi and Isuzu but lower Proton sales. The higher sales in the property division were due to higher revenue on disposal of land sales in Johor. Despite the divestment of Hicom Power, revenue in the services segment managed to achieve a small growth due largely to Alam Flora (+44%) and KLAS (+55%). The solid improvement from Puspakom was due to higher TIV growth of 2%.

 FY14 core net profit came in at RM264m due to two consecutive quarterly losses suffered in the automotive division which we believe could be from Lotus.

 QoQ 4Q14 core net profit rose sharply from a low base of RM30m in 3Q14 to RM84m, which excludes a gain of disposals of an insurance subsidiary company and parcels of land in Johor.

Outlook  Earnings contributions from its RM7.55b AV8X8 contract will start from FY14 onwards while the property division is expected to contribute positively as the group plans to launch property development projects with a total GDV of RM13.3b in 2013-15. Assembly volumes for Volkswagen vehicles should also gather pace in FY14. Additionally, there is a gain of RM89m from the Johor lands disposal; expected to be reflected in subsequent quarters. However, contribution from services segment could shrink after the sale of Hicom Power.

Change to Forecasts We are downgrading our FY15 net profit by 12% to take into account of the weaker-than-expected results at the automotive division.

Rating & Valuation Maintain MARKET PERFORM. The SoP derived target price is also reduced from RM2.53 to RM2.49.

Risks to Our Call  Economic uncertainty and a weak consumer sentiment.

Source: Kenanga