Friday, June 11, 2010

Smooth ride for AutoV Corp

AUTO-PARTS producer AV Ventures Corp has changed its name to AutoV Corp effective June 3, 2010. The company has seen its fortunes turn around strongly following the launch of the Proton Exora multi-purpose vehicle last year, and after several years of internal restructuring. This looks set to continue in the near future, and the stock is attractively priced.

AutoV Corp Bhd (AVCB, 79 sen) recently announced strong earnings for 1Q FY December 2010, largely due to the Proton Exora's launch in April 2009 which was not reflected in the previous year's numbers.

In 1Q10, revenue surged 93% to RM26.5 million. Pre-tax and net profit came in at RM3.7 million and RM3.5 million, respectively, a reversal from 1Q09's pre-tax and net losses of RM400,000. This accounted for 47% of our earlier full-year forecast of RM7.5 million, which we are revising upwards by 24% to RM9.3 million.

On a quarter-on-quarter (q-o-q) basis, AVCB's earnings also improved from 4Q09 as motor sales rose. Revenue rose 5.6% q-o-q while pre-tax profit rose by 17% q-o-q.

Following the launch of the Proton Exora in April 2009, AVCB's financial performance has turned around strongly, and this was reflected in improved earnings from 2Q09 onwards.

The company's strong balance sheet improved further, due to minimal capex needs and strong cash flow generation. Net cash improved from RM10 million in Dec 2009 to RM13.2 million in March 2010. This is equivalent to 22.7 sen per share and accounts for 29% of the share price.

No interim dividend was announced for the quarter. In 2009, the company paid its first dividend in 12 years, with total dividends of 3.5 sen. We are assuming this is maintained in 2010, which translates into a payout ratio of 17% and a generous dividend yield of 4.4%.

Positive outlook ahead
AVCB is on track for a strong performance in 2010.

Its prospects continue to hinge largely on the success of the Proton Exora MPV, for which it is supplying a large number of components, including shaft steering systems, wiper and washer systems and window regulators. Proton accounts for over 70% of AVCB's total sales.

The Exora has been well received due to its design and affordability, at under RM80,000 for a seven-seater powered by a 1.6-litre CamPro engine. It has also enjoyed some success in the region and has held its ground against the 1.5-litre Perodua Alza MPV, launched in Nov 2009 and priced below RM60,000. To compete in this price segment, Proton launched the Exora Basic in Nov 2009, a lower-end, no-frills manual variant of the Exora.

In mid-May 2010, the government announced that the Exora will be used as the "1Malaysia taxi" to provide better comfort to passengers. It is unclear if this will complement the other existing taxis, which mostly use aging Proton Saga, Iswara and Waja, or ultimately replace them

Earlier concerns over competition from the Perodua Alza for the Proton Exora have not turned out to be. The economic recovery has increased overall car sales and enlarged the pie for all car players. This has allowed the two MPV models to cater for different segments.

Indeed, the outlook for the motor sector has improved considerably as the economic recovery gained traction and consumer confidence improved. Malaysia's total auto sales fell by a much smaller-than-expected pace of 2% to 536,905 vehicles in 2009, well ahead of the earlier forecast of 480,000 vehicles as sales increased in the final quarter of the year.

The Malaysian Automotive Association expects auto sales to rise 2.4% to 550,000 vehicles in 2010, and could even exceed the record high of 552,614 units sold in 2005.

Motor vehicle sales for the month of April 2010 rose 16.8% y-o-y to 48,706 units, with year-to-date sales up 21% to 196,121 units. However, growth in the coming months could taper off as buyers adjust to higher interest rates, after the two rounds of interest rate hikes, and the recent turmoil in global financial markets due to the European debt crisis.

Over the medium term, Proton has a pipeline of new models, including the Persona replacement and Perdana enhancement models that will benefit its component suppliers.

The relatively positive outlook for Proton and Malaysia's motor sector augurs well for AVCB. After many years of losses post 1997-98 Asian financial crisis, the company has turned around nicely. Earnings are being supported by Proton's resurgence and the company has a net cash balance sheet after the earlier asset disposals and in-house restructuring exercises.

Major risks for the company would be largely macro driven ' namely the strength of the global economic recovery, the impact, if any, of the recent European debt crisis and risks of a slowdown in the second half of 2010 when stimulus measures are withdrawn.

Stock attractively priced
We maintain our positive view on AVCB. We expect net profit to rise 38% to RM9.3 million in 2010 and 6% to RM9.9 million in 2011, with EPS of 16 sen and 17 sen, respectively.

At 79 sen, the stock is trading on low P/E multiples of 4.9 and 4.6 times for 2010 and 2011, respectively, with a decent dividend yield of 4.4%

With just 58.4 million shares issued, AVCB's present market capitalisation is a mere RM46.1 million, of which RM13.2 million is in net cash. If we exclude net cash from the market capitalisation, the underlying business is implicitly valued at RM32.9 million ' or just 2.5 times our estimated Ebitda of RM13.4 million for 2010.

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.

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