APM’s 2013 earnings were in line with expectations. Recurring earnings for the year were flat y-o-y. Its  focus on the supply of semi-completed interior  modules  to  OEM  customers  helped  to  offset  margin  pressure from price-down initiatives. The expected increase in industry sales this year  will  help  APM  grow  albeit  at  a  relatively  pedestrian  pace. Prospective yields are now unexciting at just 3.6%. NEUTRAL.

• In  line.  APM  Automotive  (APM)’s  2013  earnings  were  in  line  with  our and consensus estimates.  4Q13 revenue eased 6.9% q-o-q but was up slightly (+1.8%) y-o-y.  Net profit for the quarter fell 31.2% q-o-q but was 14.4%  higher  y-o-y.  The  sequential  earnings  contraction  was  due  to  a MYR10m non-recurring gain arising from the divestment of a 25% stake in  PT  Johnson  Armada  Control  in  3Q13.  Stripping  this  out,  sequential earnings  were  stable.  2013  revenue  grew  12.1%  y-o-y  to  MYR1.26bn,helped  by  a  5.6%  rise  in  total  industry  production  (TIP).  Reported  net profit  rose  9%  y-o-y  but  after  excluding  the  non-recurring  gain,  y-o-y earnings growth was flat. A final single-tier DPS of 12 sen was declared, bringing the total DPS for 2013 to 52 sen - implying a 66.4% payout.
• Thinner margins.  Its  adjusted operating margin for the year declined to 11.8%  from  12.9%  in  2012,  reflecting  the  pricing  pressure  from  key original equipment manufacturer (OEM)  customers  that are  pushing  for greater manufacturing efficiencies. Segmentally, revenue growth was led by:  i)  the  interior  and  plastics  division,  reflecting  its  tie-up  with  IAC Group,  and ii)  the supply of pre-assembled modules that enable APM to generate higher margins than that  from the supply of loose components. The supply of modules likely helped to stave off further margin pressure. Revenue growth at other product segments was in line with TIP growth.
• Investment case.  After updating our model,  we trim our 2014 recurring earnings estimate  by 3.7%.  Going forward we think growth will continue to  be  organically-driven.  Opportunities  for  autoparts  manufacturers  to benefit  from  the  energy  efficient  vehicle  (EEV)  incentives  under  the recently  announced  National Automotive  Policy  will  very  much   depend on  whether  global  OEMs  flock  to  set  up  their  manufacturing  bases  in Malaysia  in  the  coming  years.  We  raise  our  FV  to  MYR5.80  (from MYR5.50) after nudging up our target P/E to 9x (from 8x), in line with the 9-12x P/E that its peers in the sector trade at. NEUTRAL.

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Company Profile

APM is a member of the Tan Chong Group of companies, and a leading domestic manufacturer of automotive parts and components.

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Source: RHB