9MFY21 CNP of RM873m (+22% YoY) came in within our/consensus expectation at 73%/77% of full-year estimate. Overall, Motor vehicles sales stayed on a strong recovery path despite minor setback in global supply chain, while Industrials segment inspired a better recovery ahead with higher order-book at RM3.2b (+21%). Maintain OP with SoP derived TP of RM2.55. The stock offers dividend yield of 6.6%.

9MFY21 within expectations. 9MFY21 CNP of RM873m (+22% YoY) came in within our/consensus expectation at 73%/77% of full-year estimate. No dividend was declared for the quarter which is typically announced half-yearly.

YoY, 9MFY21 core CNP excluding the one-off Tesco disposal gain of RM294m, grew stronger (+22%) than revenue (+18%) mainly due to: (i) lower finance costs from lower average borrowings (-35%), and (ii) lower effective tax rate at 23.4% (9MFY20: 30.8%) from reversal provision in investments. In term of segments, the strong CNP growth stemmed mainly from stronger Motor Vehicles profit contribution (+88%) where most of the profit came from the Greater China operation (+121%) attributable to strong luxury vehicle sales in China (+35%) coupled with higher profit contribution from the New Sydney dealerships (+116%), and earnings turnaround for Singapore and Thailand regions (+104%). Logistics segment reported profit higher contribution (+57%) mainly from forex gain as bulk cargo through-put still suffered from stiff competition. These were, however, netted off by lower contribution from Industrial’s profit contribution (-14%) due to lower equipment deliveries and parts sales in Australia following coal prices’ decline in the 1HFY21, which has since started to recover. Industrials’ order-book is at RM3,238m (+21%) which fluctuates based on work-order.

QoQ, 3QFY21 core CNP plunged 34%, more than revenue (-2%), mainly due higher effective tax rate at 27.1% (2QFY21:18.9%) from reversal provision in investments. In term of segments, all segment registered weak sales compared to seasonally stronger year-end promotion in 2QFY21, with Motor Vehicles profit contribution down 25%, Industrials (-18%) and Logistics profit contribution (-100%).

Outlook. Management noted that most of the group’s operations are in countries/territories that are not subjected to significant movemen restrictions and the recovery in motor vehicle sales has generally been strong. Motor vehicles sales continued to be on strong recovery path despite minor setback in global supply chain that may limit sales as there may not be sufficient inventories for sale for certain new models which had been the case for the drop-in units assembled (-36% YoY) Increased infrastructure spending from fiscal stimulus measures by various countries would support equipment sales for the Industria division. Its Port operation continued to face competition from other ports especially with the Chinese government rationalizing ports operations to create a larger port entity.

Maintain OP with unchanged SoP-derived TP of RM2.55 which implied PER of 14.2x on FY22E EPS. The stock offers dividend yield of 6.6% including the one-off special dividend derived from the disposal gain of Tesco Malaysia (RM294m).

Risks to our call include: (i) lower-than-expected car sales volume, and (ii) lower-than-expected industrials contribution.

Source: Kenanga Research - 27 May 2021