Period  3Q15/9M15

Actual vs. Expectations  9M15 core PATAMI of RM112.9m (-36% YoY), excluding gains from the disposal of UniAsia General Insurance of RM97.5m, came in below expectations, at 55% and 34% of our and consensus’ full-year estimates, respectively. The negative variance from our forecast is mainly due to higher-than-expected losses and lower-thanexpected volume sales at the automotive division.

Dividends  A single tier interim dividend of 1.50 sen was declared in this quarter.

Key Result Highlights  QoQ, 3Q15 revenue rose 9.4% to RM3.5b due to better contribution from automotive (+12% QoQ) and services divisions (+4% QoQ). Automotive revenue rose due largely to higher volume sales from Isuzu (+63%) and Suzuki (+2%) which more than offset lower contribution from Proton (-10% QoQ) and Mitsubishi (-11%). 34%-owned Honda shows a 9% QoQ rise in unit sales. Higher contribution from services was largely due to KLAS and Alam Flora. However, due to continuing losses at the automotive division, 3QFY15 PATAMI recorded a small profit of RM9.5m compared to a loss of RM4.4m in 2QFY15.

 YTD, 9M15 core net profit came in at RM112.9m (- 36% YoY) due to contributions from 34%-owned Honda, inclusion of Composites Technology Research SB (CTRM), higher progress billings of AV8 project and better performances in the property segment but dragged down by automotive losses in 2Q15. Proton continued to disappoint with negative sales growth of 20% bringing total sale units to 83k in 9M15. Solid Honda sales (+57% y-o-y) boosted associate contributions by >100% y-o-y.

Outlook  Earnings contributions are expected to come gradually from the RM7.55b AV8X8 contract while the property division is expected to contribute positively as the group plans to launch property development projects with a total estimated GDV of RM13.3b. Assembly volumes for Volkswagen vehicles should also gather pace.

 Additionally, there are gains of RM89m from the Johor lands disposal; expected to be reflected in subsequent quarters.

Change to Forecasts  We are downgrading our FY15E-FY16E net profit forecasts by 5%-15% to take into account the lowerthan- expected contribution from the automotive segment.

Rating & Valuation  Correspondingly, we downgrade our SoP derived target price from RM2.30 to RM2.15. The stock has risen >30% from its recent low. At current price, the stock offers a total return of 6%. As such we downgrade the stock from Outperform to Market Perform.

Risks to Our Call  Better-than-expected performance in the automotive division.

Source: Kenanga