SECTION [E]: PROSPECT OF AUTOMOBILE COMPONENTS AND PARTS MANUFACTURERS/cont'd

Conclusion and Advice

[1]. APM Automotive

APM is arguably the best managed local auto parts and components manufacturing company. Its products can be found in nearly all completely-knocked-down vehicles on the road and it has a balanced client portfolio made up of the national and non-national marques. The group is also the most efficient among its peers in terms of asset utilisation, rewarding its equity holders with consistent double-digit returns. The challenge for the group now is to build up contributions from overseas. However, this will bring pressure to the high margins that the group has been enjoying so far, as the international market is far more competitive. Despite its size, the group is in a net cash position. Finding APM Automotive Holdings a bargain at the current price, i Capital retains its Buy for the longer term rating for the group.

[2]. Ingress Corporation

i Capital likes Ingress for it is the only local vendor to have successful overseas manufacturing operations, supplying to global automobile manufacturers and have the bulk of its profits coming from its foreign operations. The price to pay for being an international vendor is that its margins are lower than that of APM and Delloyd. The challenge for the group is to increase its sales, considering the group’s assets are grossly underutilised. Divesting non-core businesses, namely, the power engineering and oil-tank cleaning divisions, would be encouraged. On the BMW dealership, though the arrangement can make the venture attractive, it is expected to bring further pressure on the group’s margins. Though the group has high leverage, the structure of the Sukuk Al-Ijarah financing (see i Capital dated 6 Oct 2005) provides a sufficient level of comfort. Finding Ingress Corporation cheap at current valuation, i Capital retains its Buy for the longer term rating.

[3]. Delloyd Ventures

Though the group generates better margins than APM and Ingress and utilises its assets more efficiently than Ingress, Delloyd ranks a notch lower than Ingress for various reasons. Top on the list is that the group has been Proton-reliant. It is due to such reliance that the group has been able to generate higher-than-industry margins. Cost down effort by Proton going forward will likely bring the group’s margin down to the industry level. On the up side, a revival in Proton would directly benefit the group. The challenge for the group is to diversify its client base, both locally and overseas. The acquisition of the Indonesian oil palm cultivation company, if successful, could add to the group’s bottom line in the long term as the estates are of mixed maturity. A financially sound company that provides limited downside, i Capital retains its Buy for the longer term rating for Delloyd Ventures.

[4] Hirotako

The group has all the positive elements. It is good at what it is doing and has a strong balance sheet. However, like APM and Delloyd, the group needs to reduce its reliance on the local automobile industry. For Hirotako, its associate contributes a substantial portion of the group’s bottom line and since the associate has been paying dividend, cash is flowing to the group. i Capital retains its Buy for the longer term rating for Hirotako Holdings.

This concludes the series on the automobile industry.