Period

2Q15/1H15

Actual vs. Expectations

Within our but below consensus’ expectations. The group reported a 2Q15 core net profit (NP) of RM29.2m, bringing 1H15 CNP to RM53.7m which made up 47% of our, but only 38% of the consensus, full-year NP forecasts. Note that the 1H core NP of RM53.7m has been adjusted for the non-core property earnings contribution (net of tax and MI) of RM10.7m, which was recognised during 1Q15.

Dividends

Above expectations. A first interim single tier DPS of 4.0 sen was declared which was came in within our expectation. However to our surprise, a special dividend of 3.0 sen was also declared, bringing YTD DPS to 7.0 sen versus our 1H15 DPS estimate of 4.0 sen. We were previously expecting the group to pay only 8.1 sen for FY15. Key Result

Highlights

YoY, 1H15 revenue increased by 3% despite the much weaker 2Q15 revenue (-24%, which was dragged by the weaker consumer demand on the implementation of GST in April). The silver lining for the 1H marginal growth was the recognition of one-off revenue from Menara MBMR development (RM139.8m) during 1Q15. Notwithstanding the above, the Group 1H15 revenue dropped by 12% owing to the lower sales from the Motor trading segment (-13%). Taking a closer look at its motor trading segment; while the largest units volume and revenue contributor- DMMS which trades Perodua vehicles recorded a decent 12% sales growth, weaker sales in both DMSB (Daihatsu & Hino trucks: -26%) and Federal Auto (continental makes: -34%) negated the decent contribution. At the bottomline, while the core PBT increased by the similar quantum to RM65.6m (+2%), with the stronger earnings contribution from 20%-associated Perodua offsetting the softness in joint venture unit- Autoliv, core PATAMI dropped by 2% as a result of higher taxation.

QoQ, for better comparison purpose, by excluding the revenue contribution from the development of Menara MBMR (RM139.8m) in 1Q15, the group revenue still decreased by 17% owing mainly to the weaker sales in Motor trading segment (-22% due to the consumers’ kneejerk reaction to the GST implementation in April and May). However, core PBT increased by 7%, thanks to the earnings boost from 20%-associated Perodua (+19%) as well as jointly controlled entity-Autoliv.(+4%).

Outlook

While most of the auto models saw 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 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 alongside with bleak TIP and TIV outlooks.

Change to Forecasts

Post-results, we have marginally trimmed our FY15EFY16E PATAMI down by 4% for house-keeping purposes. We have also raised our dividend payout ratio from 27% to 39%, translating into net DPS assumption of 11.0 sens/12.6 sens in FY15E/FY16E.

Rating

Maintain MARKET PERFORM

Valuation

Post-results, our TP has been marginally trimmed to RM3.26 (from RM3.40) based on an unchanged targeted 10.0x ascribed on FY16 EPS (at its 3-year mean forward PER).

Risks to Our Call

Higher-than-expected sales volume.

Favourable currency fluctuations

Source: Kenanga Research - 20 Aug 2015