Period  3Q14/9M14

Actual vs. Expectations  Below expectations. The group reported 3Q14 core PATAMI of RM14.1m (+13% QoQ, -82% YoY), bringing its 9M core PATAMI to RM67.7m (-70%) which made up only 58% of our, and 40% of the consensus’, full year estimates.

 Note that 9M14 core PATAMI has been adjusted by excluding: (i) the write-back of Nissan Vietnam Co. Ltd (NVL) provision for additional import duty amounting to c.RM42m (74%-owned) payable by NVL in respect of the importation of CKD parts and kits for the period from 2010 to 2012 back then. (Please refer to our report dated back in 17^th October 2013; Title: One-off Tax Hit for a recap), (ii) provision for impairment of aging NVL-originated stock amounting to c.RM11m (74%-owned), and (iii) some other non-material one-off items amounting to RM0.9m.

 The negative deviations were: (i) higher advertising and promotional expenses, and (ii) higher-thanexpected import cost due to unfavourable forex.

Dividends  As expected, no dividend was declared under the quarter reviewed. We are expecting another 3.0 sen to be declared in the 4Q14 (totalling to 6.0 sen in FY14)

Key Result Highlights YoY, 9M14 revenue dropped by 9% mainly dragged down by lower vehicle sales (-10%). Taking a closer look at its Automotive segment, its previous pioneer position in the Malaysian B-segment with Almera being the key volume driver, was replaced by the competitors’ attractive B segment new models (Toyota Vios and Honda City). In terms of market share for non-national car segment, Nissan’s position (6.6%, -1.5ppts) skidded from No.2 to No.3 with Honda (11.5%, +4.0ppts) taking the prime position. Meanwhile at the core PATAMI level, the margin came in lower at 1.9% (-4.0ppts), corroded by higher costs incurred for aggressive countercampaigns, higher discounts provided as well as higher unfavourable forex on imported CKD.

 QoQ, the 3Q14 revenue increased by 6% with stronger revenue seen across all its segments. Of noteworthy, lion share revenue contributor, the Automotive segment grew by 6%, rebounded from low base coupled with the higher sales amidst the Hari Raya celebrations. Meanwhile, core PATAMI (Provision for impairment of aging NVL-originated stock amounting to c.RM11m and other non-material EI of RM1.2m) grew by 13% along with better operational efficiency.

Outlook  We view that its operating environment in 2015 will continue to stay challenging on: (i) lacklustre consumer sentiment on the back of subsidy rationalisation programmes, (ii) tighter financing conditions, which dampen vehicle purchases, (iii) intense domestic competition, as well as (iv) higher operating costs from marketing and administering a wider geographical footprint.

Change to Forecasts  Post-results, we have cut our FY14-15E PATAMI forecasts by 13%-20% to RM93.7m-RM178.2m to mainly account for lower EBITDA margin of 6.5% in FY14 (-0.5ppts) and 8.5% in FY15 (-0.4ppts) after accounting for higher marketing and administration costs and higher imported CKD costs.

Rating Maintain UNDERPERFORM

Valuation  Post our earnings revision, our TP is reduced to RM3.61 (from RM4.62) based on a lower targeted PER multiple of 13x (being -0.5SD below its 4-year average forward PER).

Risks to our call  Stronger consumer sentiments.

 Favourable forex trends (Strengthening of the Ringgit against the USD and the JPY), which may lift up margins.

Source: Kenanga