• Auto parts trader and maker with a good track record

• Strategic venture into other emerging markets

• Undemanding valuation and consistent dividends

• Not rated with FV of RM4.43 based on FY17F PER of 11x

Business Overview:

Established in 1977, New Hoong Fatt (NHF) started off as a trader of auto parts before it ventured into manufacturing of auto parts for local models and Japanese makes. Currently, it manufactures 1,000 types of plastic items and 2,000 metal items that include hood, door, fender, lamp grille and bumper for the replacement market. Besides serving the local market with a distribution channel of more than 1,000 wholesalers and retailers, it exports to more than 50 countries.

Investment theses: 1. Good profit track record. NHF has been profitable since its listing in 1997. With the exception of FY14, its net profit margins for the past 10 years ranged from 9% to 14%. We expect the company’s earnings to continue positive growth in FY17 and FY18 as the company starts to expand into new overseas markets. This is premised on growth in volume due to higher sales and expansion in its product offering to include parts for commercial vehicles and servicing products.

2. Strategic venture into other emerging markets. NHF’s China and Indonesia trading units have started to contribute positively to the group. We expect contribution from Indonesia to grow further in the years to come due to the bigger automotive market there. In the past 10 years, cumulative total industry volume in Indonesia is 9.07mil as compared to 6.5mil in Malaysia.

3. Undemanding valuation. The stock is trading at a trailing PER of 9.6x, which is below other similar size auto parts companies that trade at an average of 14x. Its current share price of RM3.83 is a 30% discount to its NTA per share of RM4.96.

4. Consistent dividends. Dividend payout in the past five years ranged from 35% to 75%. We expect the company to pay out 14.5 sen in FY17F and 15.0 sen in FY18F, which translate into decent yields of 3.78% and 3.92% respectively based on payout assumptions of 36% and 35%.

Valuation:

We ascribe a fair value of RM4.43 on NHF based on 11x PER of FY17F and EPS of 40.24 sen. The 11x PER is a slight discount to two other auto parts peers, which trade at an average forward PER of 12.85x.

Source: MIDF Research - 5 Apr 2017