Industry Comparison – Automotive Parts (Metals Part & Heat Exchange)

Sector                 : Industrial Products & Services

Sub Sector         : Auto parts

This comparison would look into companies that manufacture and trading automotive parts (Metal Part & Heat Exchange). Company manufacturing and trading automotive interior, plastic and batteries are excluded in this comparison. The companies are:

1) APM(5015) – APM AUTOMOTIVE HOLDING BERHAD

2) EPMB(7773) – EP MANUFACTURING BHD

3) MCEHLDG(7004) – MCE HOLDINGS BERHAD

4) SAPIND(7811) – SAPURA INDUSTRIAL BERHAD

5) SMISCOR(7132) – SMIS CORPORATION BERHAD

Competitiveness

Market shares is an importance indicator to determine the competitiveness of the company. Total revenue make from manufacturing and trading of metal part & heat exchange for automotive industry for the year 2018 is RM 1,268,272,929.

COMPANY	REVENUE (AUTOMOTIVE PARTS) 2018 (RM)	MARKET SHARE (%)
APM (5015)	408,307,000	32.19
EPMB (7773)	472,602,000	37.26
MCEHLDG (7004)	62,539,164	4.93
SAPIND (7811)	209,166,765	16.49
SMISCOR (7132)	115,658,000	9.12

EPMB and APM is the top two companies for 2018 in term of market share which are 37.26 %and 32.19 % respectively. Both companies add up to have 69.45 %.

Operational

For operational, operating income of the companies had been review. Operating income determine how much the companies’ revenue had turn into profit after reduction cost of operating expense.

Besides operating income, operating margin ratio is also calculated. Companies with higher operating margin ratio have more probability to survive in today financial crisis. The median operating margin ratio for this group of companies for 2018 is 1.28 %.

COMPANY	2018 OPERATING INCOME (RM)	2018 OPERATING MARGIN RATIO
APM (5015)	26,220,000	6.42
EPMB (7773)	6,045,000	1.28
MCEHLDG (7004)	-1,162,806	-1.86
SAPIND (7811)	7,479,810	3.58
SMISCOR (7132)	-1,062,000	-0.92

As a value investor, company with negative operating income would be considering disqualified from the evaluation. Hence MCEHLDG and SMISCOR would be disqualified. Even though EPMD has positive operating income in 2018 but EPMD had negative operating income for 2017. So EPMD would be disqualified as well.

APM had the highest operating margin ratio which is 6.42 compare to it peers with a median operating margin ratio of 1.28.

Sustainability

For the sustainability of the business, debt of the companies is being review. There are two criteria to look at interest coverage ratio , which is used to determine how easy the companies able to pay off the interest of outstanding debt and debt ratio . 

The median debt ratio for 2018 is 0.37.

COMPANY	2018 INTEREST COVERAGE RATIO	2018 DEBT RATIO
APM (5015)	7.01	0.24
EPMB (7773)	0.41	0.55
MCEHLDG (7004)	-3.98	0.12
SAPIND (7811)	3.84	0.48
SMISCOR (7132)	-2.14	0.37

APM is the best company for sustainability because it has high interest coverage ratio and low debt ratio.

Summary

In summary a point is given to each company to evaluated each company competitiveness, operational and sustainability. Points given are as follows:

Competitiveness

Criteria	Point
Greater than 30 % Market Shares	5
20.01 % - 30.00 % Market shares	4
10.01 % - 20.00 % Market shares	3
5.01 % - 10.00 % Market shares	2
1.00 % - 5.00 % Market shares	1
Less than 1%	0

Operational

Criteria	Point
Greater than 2.05  Operating Margin	5
2.01 – 2.05 Operating Margin	4
1.51 – 2.00 Operating Margin	3
1.01 – 1.50 Operating Margin	2
0.51 - 1.00  Operating Margin	1
0.00 – 0.50 Operating Margin	0
Less than 0	Disqualified

Sustainability

Criteria	Point
No Financial Cost	2
Greater than 5 Interest Coverage Ratio	1
Less than 5 Interest Coverage Ratio	0

Criteria	Point
Less than 0.25	3
0.25 – 0.40	2
0.40 – 0.55	1
Greater than 0.55	0

COMPANY	Competitiveness	Operational	Sustainability	Total
APM (5015)	5	5	4	14
EPMB  (7773)	5	DIS	1	DIS
MCEHLDG (7004)	1	DIS	3	DIS
SAPIND   (7811)	3	5	1	9
SMISCOR   (7132)	2	DIS	2	DIS

From the evaluation above, APM (14 points) is qualified for further analysis.

However investor shall take note that this industry only contribute 32.19 %  of APM 2018 revenue. APM also operate in other sectors which is interior & plastic segment which is 56.17 % of APM 2018 revenue.

Summary of Stock Reviews

Summary of Industry Comparison

Stock Review – APM (5015) (APM AUTOMOTIVE HOLDINGS BERHAD) - 2

Bursa Malaysia - 5015

Bloomberg - APM:MK
Yahoo - 5015 .kl
Webpage - http://www.apm.com.my/

Sector : Industrial Products & Services

Sub Sector : Auto Parts
Focus : Metal Parts & Heat Exchange

Company Profile

APM is a Malaysian Automotive Parts Manufacturer that has expanded to become a major regional supplier. APM has business in Malaysia, Thailand, Indonesia, Vietnam, Australia, United States and Netherlands.

1) Operating Segment

APM consists of 7 main reporting segments as follow:

Segment	% 2018 Revenue	Asset Turnover	Return on Asset (%)	% 2018 CAPEX
Suspension, Malaysia	5.58	47.87	5.72	7.65
Interior and Plastic, Malaysia	55.93	130.77	10.97	33.62
Electrical Heat Exchanger, Malaysia	8.43	104.09	6.64	3.22
Marketing, Malaysia	16.83	230.72	10.67	0.93
Indonesia	3.18	19.33	-5.30	13.45
All Other Segment	7.63	48.96	-0.97	31.58
Non Reporting Segment	2.42	2.69	0.17	9.54

Suspension Division, Malaysia

Business in products such as leaf springs, parabolic springs, coil springs, shock absorbers, gas springs, U-bolts and metal parts.

Interior & Plastic Division, Malaysia

Business in products such as plastics parts, interiors, seatings for motor vehicles, buses, auditoriums, cinemas, rails and light rails system.

Electrical & Heat Exchange Division, Malaysia

Business in products such as air-conditioning systems, radiators, starter motors, alternators, wiper system, distributors, In Vehicle Infotainment (“IVT”) systems, and other electrical parts; and development of Internet of Things (“IOT”) telematics problem.

Marketing Division, Malaysia

Trading and distribution of automotive components/parts manufactured by the Group for the replacement and export market.

Indonesia Operations

Business in Indonesia.

All Other Segments

Business in Thailand, Vietnam, Myanmar, Australia, India, United States of America and Netherlands.

Non-reportable Segments

Operation related to the rental of investment properties in Malaysia; casting machining and assembly of aluminium parts and components distribution of motor vehicles, provision of management services for companies within the Group, and the provision of automotive research and development services.

From 2018 annual report, APM oversea operation is making loss. APM largest segment is the Interior and Plastics division where 55.93 % of the revenue for 2018 is from this segment. The segment also had the largest return of asset which is 10.97% and largest CAPEX which is 33.62 % of 2018 total CAPEX.

Besides that APM also had place sustainable amount of CAPEX 31.58 % of 2018 CAPEX into all other segment.

PROS:

è APM place largest amount of CAPEX (33.62% of 2018 CAPEX) into Interior and Plastics segment which yield the best return on assets.

CONS:

è Oversea operation is making loss è 31.58% of 2018 CAPEX go into all other segment which is making loss in 2018.

Financial Statement

APM has RM 18,392,000 of intangible asset as of 2018 annual report. Besides that APM deferred tax assets had increase from RM 12,113,000 in 2017 to RM 16,799,000 in 2018. Deferred tax asset is overpaying tax to the government.

APM had increase the trade and other receivable from RM 232,726000 (2017) to RM 250,889,000 (2018) while reducing the account receivable past due from RM 25,534,000 (2017) to RM 22,582,000 (2018).

APM deposit, prepayment, cash and equivalent had decrease from RM 266,580,000 (2017) to RM 252,765,000 (2018).

PROS:

è  Increase trade and other receivable in 2018 while reducing the account receivable past due.

CONS:

è  APM having RM 18,932,000 of intangible asset è Increase of deffered tax asset by 38.69 %. è 5.18% decrease in deposit, prepayment, cash and equivalent.

APM loans and borrowings had increase from RM 68,826,000 (2017) to RM 81,495,000 (2018), 18.41 % increase.

CONS:

è APM loans and borrowings had increase by 18,41 %

Financial Ratio

Description	2018	2017	Different
Gross Profit Margin	0.15	0.16	-0.01
Net Profit Margin	0.05	0.04	+0.01
Interest Coverage Ratio	18.99	15.67	+3.32
Effective Tax	0.22	0.30	+0.08

Warrant

No Warrant issue

Dividend and Bonus Issued for the past five year

APM had constant dividend for the past five year from 2014 – 2018 with the average of RM 0.172 with the dividend yield of 8 % base on APM stock price of RM 2.15 on 17/12/2019

PROS:

è APM had dividend yield of 8 % for the past five year which is higher than fixed deposit of 3.00%

Market Research

Affin Hwang Capital (25 November 2019)

Price Target : RM 1.95

·       Net profit fell by 71% qoq damped by losses from its Indonesia associate company

AmInvestment Bank (25 November 2019)

Price Target : RM 1.68

·       Expecting Indonesia operation continue to dragging the group’s earning

·       Lower production and higher operating expenses

Estimated Price

IVKLS Price : RM 2.22

Peers

1)        AFUJIYA (5198)

2)    CAP (5229)

3)        EPMB (7773)

4)        ESAFE (0190)

5)    GOODWAY (7192)

6)    GPA (7096)

7)    JETSON (9083)

8)    MCHELDG (7004)

9)    PECCA (5271)

10)  SAPIND (7811)

11) SMISCOR (7132)

12) WATTA (7226)

Summary of Stock Reviews

Summary of Industry Comparison