Period  4Q14/FY14

Actual vs. Expectations  Within expectations. The group reported a 4Q14 net profit (NP) of RM33.5m, bringing its FY14 NP to RM114.2m (-18%) which made up 97% of both our and the consensus full-year NP forecasts.

 The group has changed the basis of its financial statements preparation by adopting MFRS 11 apart from MFRS 10, due to conservative interpretation of MFRS 10 in considering the present contractual relationship between the shareholders of Autoliv Hirotako (AHSB), Autoliv AB (49% shareholders in AHSB) and Hirotako Holdings (51% shareholders in AHSB and also 100% owned by MBMR). Consequently, the group has deconsolidated Autoliv Hirotako Sdn Bhd from the group’s financial statements and treated it as a jointly controlled entity. Note that the adjustments will not alter the group’s PATAMI.

Dividends  Above expectations. A second interim net DPS of 4.0 sen was declared under the quarter reviewed, bringing YTD net DPS to 8.0 sen which implies 27% of DPR (net yield of 2.4%). We expected total DPS of 6.0 sen for the full-year.

Key Result Highlights

 YoY, FY14 revenue declined by 9% as the decent growth driven by the higher production volumes in Auto parts manufacturing (+17%) was negated by lower vehicles sales in the Motor vehicles trading segment (- 11%). Taking a closer look at its motor trading segment, all of its subsidiaries namely DMMS which trades Perodua vehicles (-4%), DMSB- Daihatsu & Hino trucks (-12%) and Federal Auto (-16%) registered lower vehicle sales with market shares being clawed by competitors’ attractive newer models as well as being dragged by lower consumer spending appetite amid rising costs of living. Coupled with the lower volumes and new manufacturing facilities’ start-up costs in its share results of associates (-10%), PBT dropped by 15% while margins shrunk to 7.4% (-0.5ppts).

 QoQ, 4Q14 revenue declined marginally by 1% with lower sales in its Motor Trading segment (-3%) offset by improved revenues from Auto Parts Manufacturing segment (+15% due to higher tyre assembly services). PBT, however, improved by 44% driven by the higher earnings contribution from Perodua (+31%, boosted mainly by Perodua Axia) as well as better sales in Autoliv Hirotako (now parked under its jointly controlled entity).

Outlook  We expect the group’s earnings to rebound in FY15 underpinned by: (i) upcoming contracts to be secured for its OMI Alloy plant, (ii) full sales contribution from the new model launching- Perodua Axia, and (iii) breakeven in the new plants of its associates.

Change to Forecasts  We maintain our FY15 earnings for now pending further details from the briefing today.

Rating UNDER REVIEW

Valuation  We placed our Call and TP in check (with upside bias) pending further details from the briefing today. Our previous recommendation was MP with TP of RM3.06 PER multiple of 9.0x (close to the +0.5SD above its 4- year average forward PER).

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

 Adverse currency fluctuations 

Source: Kenanga