Period

1Q15

Actual vs. Expectations

Below expectations. The group reported a 1Q15 core net profit (NP) of RM24.4m which made up only 18% and 17% of our and the consensus full-year forecasts. Note that the 1Q core NP of RM24.4m has been adjusted for the noncore property earnings contribution (net of tax and MI) of RM10.7m.

The main negative deviations were: (i) lower-than-expected earnings contribution from the jointly controlled entity- Autoliv Hirotako Sdn Bhd (razor-thin margins due to price pressures from major customers), and (ii) lower-thanexpected earnings from the associated Hino Motors Sales (lower vehicle sales).

Dividends

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

Highlights

YoY, 1Q15 revenue increased by 32% mainly driven by the one-off revenue contribution from the development of Menara MBM (RM139.8m). Notwithstanding the above, the group’s revenue inched up by 1% underpinned by growth in both Motor trading segment (+1%) and Auto parts manufacturing (+6%). Taking a closer look at its motor trading segment, while both DMSB (Daihatsu & Hino trucks) and Federal Auto (continental makes) registered lower sales with weaker consumer spending appetite for its vehicles, decent sales in the largest units volume and revenue contributor DMMS, which trades Perodua vehicles (+28%), cushioned the weaker revenue from both DMSB and Federal Auto. Despite the marginal topline growth, core PBT increased by 13% to RM31.7m helped by better product mix in Motor trading segment as well as higher earnings contribution from Perodua (9%, boosted mainly by Perodua Axia).

QoQ, excluding the revenue contribution from the development of Menara MBMR (RM139.8m), the group revenue increased by 8% to RM451.9m) mainly driven by the Motor trading segment (higher passenger vehicle sales driven by pent-up demand ahead of the implementation of GST. Core PBT, however, decreased by 20% mainly dragged by: (i) the Motor trading segment (-11%) with car dealers sacrificing margins to clear old inventories in avoidance of tax complications post-GST implementation, and (ii) lower sales volume (-66%) in both associated Hino Motor Sales and jointly controlled entity Autoliv Hirotako (- 12%).

Outlook

While most of the vehicles models saw price reduction 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 1-5% are insignificant compared to the total cost of ownership. Hence, we expect headwinds to continue in FY15 for its motor trading segment and auto parts manufacturing with bleak TIP and TIV outlook.

Change to Forecasts

Post-results, we have cut our FY15/16E PATAMI by 16%/12% after accounting for lower earnings assumption from its jointly controlled entity Autoliv Hirotako (-20%/- 14%) and associated Hino Motors Sales (-7%/-4%).

Rating

Maintain MARKET PERFORM

Valuation

Post-results, we rollover our valuation base year from FY15E to FY16E. With an unchanged targeted PER of 10.0x (which is its 3-year mean forward PER), our new TP is now RM3.40 (from RM3.52 previously).

Risks to Our Call

Lower-than-expected sales volume.

Adverse currency fluctuations

Source: Kenanga Research - 26 May 2015