Period  4Q14/FY14

Actual vs. Expectations  Within house but below consensus’ expectations. The group reported 4Q14 normalised PATAMI of RM186.0m (+6% QoQ, -4% YoY), bringing its full-year normalised PATAMI to RM791.5m (-7.1% YoY). The results came in within our forecast (at 100%), but below the consensus (at 91%) estimates.

 Note that the FY14 normalised PATAMI has been adjusted by excluding the non-core items totalling RM133.8m which consists of: (i) provision for expected loss on disposal of its Auto components companies in India amounting to RM92.3m, (ii) the gain on disposal of properties of RM30.4m, (iii) the impairment of investments of RM50.9m, and (iv) derivatives loss of RM41.1m, as well as others immaterial non-core items of RM20.0m.

Dividends  Below expectation. A third interim single-tier dividend of 16.0 sen per share was declared, bringing its YTD DPS to 41.0 sen (FY14: 44.0 sen) which implies a DPR of 61% (net dividend yield of 3.7%. We were previously expecting total DPS of 50.0 sen (DPR of 74%) to be declared

Key Result Highlights  YoY, FY14 revenue increased by 7% due to higher revenue contributions across the Automotive and Oil & Gas segments. However, normalised PATAMI declined by 7% to RM791.5m with lower core NP margin of 5.3% (-0.8ppts) seen, mainly dragged down by its lower associate earnings (-11% YoY).

 QoQ, 4Q14 revenue growth remained flat (+0.1%) with growth in Oil & gas negated by weaker sales in Automotive and M&E segment. Normalised PATAMI however, came in higher at RM186.0m (+6%) mainly helped by higher associate earnings (+93%, driven by Perodua on overwhelming demand for Perodua Axia).

 QoQ, Automotive: 4Q14 revenue decreased by 3% mainly due to unfavourable model mix. Meanwhile, segmental PBT was lower by 23% with PBT margin corroded by 3.3ppts which we believe was mainly due to: (i) higher A&P expenses amidst fierce competition, and (ii) higher imported CKD costs on unfavourable forex.

 YoY, Equipment: FY14 revenue increased by 4% on the back of higher demand for Toyota forklifts in the industrial equipment segment. With the higher operational efficiency, PBT increased by 11%.

 YoY, Oil & gas: FY14 revenue recorded a decent growth of 38% on the back of: (i) full contribution from NAGA 4 which commenced operations on April 2013, (ii) higher utilisation rate for NAGA 2 and NAGA 3, (iii) and additional contribution from NAGA 5 and NAGA 6 which commenced operations in May14 and Oct14, respectively. Similarly, PBT increased by 38% to RM286.2m.

 YoY, M&E: FY14 revenue came in flat at RM724.3m (- 1.5%) mainly due to stiff competition in the lubricant business and lower contributions from the local automotive component manufacturers. However, PBT increased by 140% due to improved margin from the lubricant business in China.

Outlook  For FY15, we expect its Automotive segment to register a combined total sales (Perodua, UMW Toyota) of 302k units (+1%) with higher sales volume assumptions from Perodua (+5% to 204k units, mainly driven by Perodua Axia and MyVi) to offset lower sales volume assumption of UMW Toyota (-5% to 98k units amidst the lack of new attractive models as opposed to its competitors).

 On the Oil and Gas segment, while the sector is currently facing headwinds with bleak prospect, the downside could be partly cushioned by its new jack-up rigs that will see delivery in Sept 15 as well as potential future contracts given that there are at least 17 rig contracts that are expiring from mid-2013 to 2015.

Change to Forecasts  Post-results, we have marginally tweaked our FY15 PATAMI forecasts by +1% for house-keeping purposes.

Rating Maintain MARKET PERFORM

Valuation  While there are no changes in our key earnings assumptions, our TP is reduced to RM11.00 from RM11.70 as we cut our targeted PER ascribed on the O&G business from 15.0x to 13.0x in lieu of the O&G sector-wide derating amidst the uncertain oil price environment. Our TP of RM11.00 is based on a SoP valuation (implies 14.0x FY15 PER, at its average PER mean).

Risks to Our Call  Lower-than-expected vehicle sales. 

Source: Kenanga