Period

1Q15

Actual vs. Expectations

Broadly within our expectation. The group reported 1Q15 core net profit (NP) of RM23.9m (>100% QoQ, - 41% YoY) which made up 21% of our but only 18% of the consensus full-year estimates.

Note that 1Q15 core PATAMI has been adjusted by excluding: (i) provision and write-off of receivables and inventories totalling to RM2.6m, (iii) gain on disposal of PPE amounting to RM1.7m, (iii) and some other nonmaterial one-off items amounting to RM3.3m.

Dividends

As expected, no dividend was declared for the quarter. Key Result

Highlights

YoY, 1Q15 revenue increased by 25% mainly driven by higher vehicle sales in its passenger segment (+14%; source: MAA statistics). In terms of market share for non-national passenger vehicle segment, Nissan (8.0%, +0.7ppts) regained back its No.2 position from Toyota (7.2%, -5.3%) compared to a year ago mainly underpinned by the new sales of its flagship B-segment model- Nissan Almera facelift and new Nissan X-Trail. While revenue recorded stellar growth, EBIT, however, declined by 24% with margins being corroded by 2.3ppts to 3.4%. This indicates: (i) higher CKD kits cost arising from unfavourable forex, and (ii) aggressive offers and incentives given to clear old stocks prior to the implementation of GST in avoidance of tax complications.

QoQ, 1Q15 revenue increased by 24% underpinned by new sales of its new and facelift models (as mentioned above). With a better product mix coupled with the group’s sales realignment strategy, EBITDA margin improved by 1.5ppts to 5.5%.

Outlook

Although Nissan CKD models saw some price reductions following the implementation of GST, we do not see it as a strong re-rating catalyst for the group as the small price reductions of 0.3-2% are very insignificant compared to the total cost of ownership.

We view that its operating environment in 2015 will continue to stay challenging on: (i) lacklustre consumer sentiment on the back of rising cost of living, (ii) tighter financing requirements, which dampen vehicle purchases, (iii) intense domestic competition as well as higher operating costs from marketing campaigns, and (iv) higher import cost on unfavourable currency fluctuations.

Change to Forecasts

Post-results, we fine-tuned our FY15 PATAMI forecast by -3% to RM109.0m for house-keeping purposes. We also cut our FY16E PATAMI by 15% after accounting for lower vehicle sales and higher imported CKD costs as we had been overly optimistic on the group’s FY16 outlook.

Rating

Maintain UNDERPERFORM with no immediate rerating catalyst in sight.

Valuation

Post-results, we roll over our valuation base year from FY15E to FY16E. With an unchanged targeted 0.65x ascribed on FY16 BVPS (close to -2SD below its average 3-year mean forward PBV), our new TP is now RM2.87 (from RM2.80 previously). Our TP also implies a FY16E PER of 12.8x.

Risks to Our Call

Stronger consumer sentiment.

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

Source: Kenanga Research - 14 May 2015