FY21 CNP of RM1,248m (+20% YoY) came in within both of our/consensus expectations at 105% of estimates. 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 RM3.3b (+48%). We increased our FY22E CNP by 20%, and introduced FY23E CNP of RM1,522m (+6%) on stronger Motor Vehicles segment post lockdown. Maintain OP with a higher SoP-derived TP of RM2.60 (from RM2.35). The stock offers dividend yield of 4.4%.

FY21 within expectations. FY21 CNP of RM1,248m (+20% YoY) came in within both of our/consensus expectation at 105% of estimates. Second interim dividend of 8.0 sen, special dividend of 1.0 sen was declared for the quarter (4QFY20: 8.0 sen), bringing FY21 DPS to 15.0 sen (FY20: 10.0 sen), as expected.

YoY, FY21 core CNP excluding the one-off Tesco disposal gain of RM294m, grew stronger (+20%) tracking strong revenue (+20%) and backed by: (i) lower finance costs from lower average borrowings (-33%), and (ii) lower effective tax rate at 27.3% (FY20: 31.5%) from reversal of provision in investments. In term of segments, the strong CNP growth stemmed mainly from stronger Motor Vehicles’ profit contribution (+77%) where most of the profit came from the Greater China operation (+99%) attributable to strong luxury vehicle sales in China (+36%) coupled with higher profit contribution from the new Sydney dealerships (+131%), and earnings turnaround for Singapore and Thailand operations (+143%). Logistics segment reported higher profit contribution (+53%) 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 (-10%) due to lower equipment deliveries and parts sales in Australia following coal price decline in 1HFY21, which has since started to recover. Industrials’ order-book is at RM3,278m (+48%) which fluctuates based on work-order.

QoQ, 4QFY21 core CNP surged 56%, more than revenue (+3%), mainly due to: (i) recognition of dividend income from BMW Malaysia at RM113m versus none in 3Q as it receives dividends only in the 4Q each year (4QFY20: RM120m), (ii) strong profit contribution from Industrials (+17%) from the Australasia operations with the sale of higher margin equipment, despite slower sales (-6%), and (iii) continued stronger China motors performance (+2%). These were netted off by higher effective tax rate of 43.5% (3QFY21: 27.1%) affected by one-off items.

Outlook. Management noted that most of the group’s operations are in countries/territories that are not subjected to significant movement 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 could 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 (-28% YoY). Increased infrastructure spending from fiscal stimulus measures by various countries would support equipment sales for the Industrial division.

FY22E CNP increased by 20%, and introduced FY23E CNP at RM1,522m (+6%). This is to reflect the stronger performance of motor vehicles and post-pandemic recovery.

Maintain OUTPERFORM with a higher SoP-derived TP of RM2.60 (from RM2.35) which implied PER of 12.3x on FY22E EPS. The stock offers dividend yield of 4.4%.

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

Source: Kenanga Research - 26 Aug 2021