APM’s 1Q13 results were in line with consensus estimates but ahead of our forecasts. APM achieved improved operating margins during the quarter helped by a weaker JPY although it is likely to be clawed back by OEM customers. No dividend was declared during the quarter. We raise our 2013-14 forecasts by 10.1% and 11% respectively, raising our fair value to MYR5.35 (from MYR4.85). Maintain NEUTRAL.

♦  Price cuts squeeze margins. APM’s revenue for the quarter was relatively tepid, growing just 3.0% y-o-y despite industry production rising 12.2% y-o-y. This is likely due to price reductions demanded by OEM customers. EBIT margin contracted to 12.8%, down from 14.4% in 1Q12 but was better than the 9.7% achieved in 4Q12 that were adversely affected by inventory provisions relating to the depreciation of the JPY.

♦  Increased sales at interior and plastics segment. Across its product segments, revenue was flat y-o-y at its suspension and electrical product line due to lower demand and the weak EUR. Sales of interior and plastic products rose 10.2% y-o-y. Revenue from operations outside Malaysia declined 11.4% y-o-y due to the divestment of its Australian radiator business

♦  Growth prospects capped. We believe sustained growth prospects for domestic autoparts players will be capped by limited automotive sales volume potential. The Malaysian Automotive Association (MAA) is only forecasting 2% total industry volume (TIV) growth this year. Management also warned of higher parts and raw material costs. APM will also find it tough to penetrate regional automotive markets in Thailand and Indonesia due to the entrenched presence of Japanese tier-1 autoparts suppliers. We understand that APM is likely to enjoy a reversal of some JPY-related inventory provisions in 2Q13 after negotiating a cost pass through agreement with a major customer. Near term revenue could be lifted by orders from Berjaya Auto for components for the locally assembled Mazda 6.

Source: RHB