Period

3Q15/9M15

Actual vs. Expectations

Below expectations. The group reported a 3Q15 core net profit (NP) of RM8.6m (-71% QoQ; -67% YoY), bringing 9M15 CNP to RM62.3m (-23%) which made up 56%/49% of our/consensus FY15E NP. Note that the 9M15 core NP of RM62.3m has been adjusted for the non-core property earnings contribution (net of tax and MI) of RM10.7m, which was recognised during 1Q15.

The main negative deviations were: (i) lower-than-expected earnings contribution from the joint-venture entity-Autoliv Hirotako Sdn Bhd (due mainly to lower production deliveries to one of its major customers), and (ii) lower-than expected earnings from 20%-associate Perodua (which we believe might have been dragged by start-up losses in Perodua’s new engine plant on top of the adverse currency fluctuations).

Dividends

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

Highlights

YoY, 9M15 revenue inched up by 1% 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 9M15 marginal growth was the recognition of one-off revenue from Menara MBMR development (RM139.8m) during 1Q15. Notwithstanding the above, the Group 9M15 revenue dropped by 9% owing to the lower sales from the Motor trading segment (-11%). 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 16% sales growth, weaker sales in both DMSB (Daihatsu & Hino trucks: -25%) and Federal Auto (continental makes: -29%) negated the decent contribution. At the bottomline, the core PATAMI decreased by 23% to RM62.3m, dragged by weaker earnings contribution from 20%-associate Perodua (impacted by adverse currency fluctuations) and JV unit- Autoliv (lower sales caused by its customer’s weaker vehicle production).

QoQ, the group 3Q15 revenue improved by 10% driven by stronger sales in Motor trading segment. However, we attribute it to the normalisation from lacklustre 2Q15 sales (recall that there was a negative knee-jerk reaction from customers to the GST implementation in April and May). Despite of the narrower EBIT losses, core PBT dropped by 63% due to weaker earnings contribution from 20%- associate Perodua (impacted by adverse currency fluctuations) and JV unit- Autoliv (lower sales caused by its customer’s weaker vehicle production).

Outlook

We expect headwinds to continue in FY16 for its motor trading segment and auto parts manufacturing alongside with bleak TIP, TIV outlook and unfavourable currency movement.

Change to Forecasts

Post-results, we have trimmed our FY15-16E PATAMI by 11-22% to account for lower margins assumption on associates–Perodua, Hino Motors and JV entity- Autoliv Hirotako.

Rating

Maintain MARKET PERFORM

Valuation

Our TP has been reduced to RM2.92 (from RM3.26) 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 - 19 Nov 2015