Period

4Q15/FY15

Actual vs. Expectations

Within house but below consensus. The group reported 4Q15 core net profit (NP) of RM14.1m (>100% QoQ and YoY), bringing FY15 core NP to RM57.1m (-19%) which made up 104%/73% of our/consensus’ forecasts. (Please refer to the “Results highlight” for details on core NP adjustment).

Dividends

Above expectations. A final single-tier dividend of 3.0 sen was declared, bringing FY15 NDPS to 5.0 sen (vs our/consensus of 4.0sen/4.4sen) which translates into a net yield of 2.1%. Key Result

Highlights

YoY, although the group’s total vehicle sales, which is its lion’s share revenue contributor (99%) only inched up by 2% (source: MAA statistic in FY15), its FY15 revenue increased by 20%, suggesting better product mix (better sales on higher priced models such as Xtrail and Navara). While revenue recorded a stellar growth, core PATAMI, however, declined by 19% with margins corroded to 1.0% (from 1.5%). These were due to: (i) higher CKD kits cost arising from unfavourable forex, and (ii) aggressive offers and incentives given prior to the implementation of GST in avoidance of tax complications in 1Q15 as well as the ongoing aggressive sales promotion activities.

QoQ, 4Q15 revenue improved by 10%, which is in conjunction with its vehicle sales growth of 9% in 4Q15. While reported EBIT was down by 50% after charging the provision for the write-off of receivables and inventories as well as the unrealised exchange gains for advances provided to overseas subsidiaries in 3Q15, core EBIT registered a growth of 18% as a result of higher operational efficiency.

Outlook

We believe the challenging operating environment in 2015 will extend into 2016, to be dragged by: (i) lacklustre consumer sentiment on the back of rising cost of living, (ii) tighter financing conditions dampening vehicle purchases, and (iii) intense domestic competition as well as higher operating costs from marketing and higher import cost on unfavourable currency fluctuations.

Change to Forecasts

Post-results, our FY16E NP is trimmed by 1% for house-keeping purposes. Meanwhile, we introduced our FY17E numbers.

Rating

Maintain UNDERPERFORM as we see no immediate re-rating catalyst in the near term.

Valuation

We made no changes to our TP of RM2.15. This is based on a targeted 0.5x ascribed on FY16 BVPS (close to -2SD below its average 3-year mean forward PBV). Our TP also implies FY16E PER of 21x.

Risks to Our Call

Recovery of consumer sentiment.

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

Source: Kenanga Research - 24 Feb 2016