1. Earnings Outlook

• NHF has announced that its indirect wholly-owned PT. Auto Global Parts Indonesia (PT AGPI) has entered into sales and purchase agreement to acquire a piece of land in Indonesia measuring 24,575 sqm (6.1 acres) for RM17.97m cash.

• The land is strategically located at Cikarang Industrial City with a “dry port” supporting movement of goods by rail transport to the nearest sea port. Cikarang Industrial City, located within 35km distance east of Jakarta, is one of the largest and nearest industrial estate to Jakarta.

PT AGPI was incorporated in Indonesia on 20-Jun-16 to undertake manufacturing and distribution activities in Indonesia. Sales to the Indonesian market have picked up strongly, which necessitates the need for a manufacturing presence in the longer term. As such, the land acquisition is intended for the setting up of a manufacturing plant in Indonesia for better cost competitiveness and shorter lead time in products’ delivery to customers. Given the strategic location of the land, it serves as a springboard for distribution of products to customers located outside of Jakarta.

• However, a more concrete plan will only materialise towards 2HFY18 with another 18-24 months required for the construction of a manufacturing plant.

• Given its minimal net gearing of only 0.03x and strong operating cash flows, NHF should not have problem in funding the acquisition cost of RM17.97m.

2. Valuation and Recommendation

• We are maintaining our earnings forecast and BUY recommendation on the stock. We like the positive dynamics of growing car populations, steady demand of replacement market, resilient earnings base as well as the long-term growth prospects from the more aggressive expansion into export markets.

• The stock is currently trading at an unwarranted discount of 21% to its book value of RM4.96/share as at end-FY16. Based on our EPS forecast of 39.1 sen for FY17, the stock is currently trading at a P/E of 10.1x against market P/E of 16x. The stock also provides a yield of 3.6% based on a total dividend of 14 sen for FY16.

Source: BCT Asia Research - 18 Apr 2017