THE financial outlook for AV Ventures (AVCB: 75 sen) has improved significantly following the success of the Proton Exora MPV. The MPV has been very well received in Malaysia, and is also making headway into regional markets.
AVCB recently posted sterling results for the second quarter of 2009 (2QFY Dec 2009), showing a strong recovery after a marginal loss in 1Q09, as the Proton Exora MPV project started contributing.
In 1Q09, AVCB had posted a small pre-tax and net loss of RM400,000 due to lower car sales due to the recession, the lack of contributions yet from the Proton Exora and higher overall costs associated with Proton Exora's pre-launch development.
Following the launch of the Proton Exora MPV in April 2009, AVCB's financial performance has turned around very strongly, as we had expected.
In 2Q09, the company posted pre-tax profit of RM2.4 million and net profit of RM2.2 million. Turnover rose 61.3% year-on-year (y-o-y) to RM25.2 million. Net profit increased 24% y-o-y from RM1.7 million in 2Q08, or effectively doubled if we exclude a RM600,000 gain from property sale in 2Q08.
For the first half of 2009 (1H09), revenue increased 11.4% to RM38.9 million. However, profits were lower y-o-y due to 1Q09's losses and gains of RM740,000 million from the sale of two properties in 1H08. Pre-tax profit for 1H09 fell 42.5% to RM2 million while net profit declined 37.9% to RM1.8 million.
The company has a net cash balance sheet, following the earlier disposal of properties and minimal capital expenditure needs. Net cash stood at RM5.7 million in June 2009, equivalent to 10 sen per share, or 13% of the current share price.
Stronger second half ahead
We expect a very strong second half ahead for the company, with earnings in 3Q09 and 4Q09 to be boosted by the full impact of the Proton Exora after initial "teething" issues.
AVCB is poised for a strong showing this year and next, riding on the success of the Proton Exora. The company is supplying a large number of components for the MPV, including shaft steering systems, wiper and washer systems and window regulators.
The Proton Exora MPV has been well received, locally as well as regionally. It is affordably priced at under RM80,000 for a seven-seater MPV powered by a 1.6-litre CamPro engine. Bookings have opened to the public since Feb 21, 2009 — despite the design being kept under wraps then.
Since the official launch in April 2009, demand has been robust, with 18,000 units booked (as of mid-August 2009), and some 10,000 units already delivered and registered. We understand there is currently a four-month domestic waiting list.
Proton has also tapped the regional market with some success, with 1,200 bookings in Indonesia. The national carmaker plans to target Thailand before the end of the year, and China and the Middle East next year.
Meanwhile, the outlook for the motor sector in general has also improved somewhat as the global recession abates and recovery signs become more evident. The worst for the domestic and global economy was over in 1Q09, and consumer confidence and spending are recovering.
In Aug 2009, Malaysia's auto sales rose 2.8% y-o-y to 48,538 units. Although this was down 6.5% month-on-month (m-o-m) from July's sales of 51,928 units, it should be noted that July's sales were up a significant 14.9% m-o-m. Sales of motor vehicles for the first eight months of the year fell by a smaller rate of 7.3% y-o-y to 351,550 units, as the recession abated. The Malaysian Automotive Association forecasts sales of 480,000 units for 2009, down from last year's 548,115 units.
Company turns around nicely
AVCB has turned around nicely, with a clean balance sheet after several in-house restructuring exercises and asset disposals. Its earnings outlook is positive despite a fairly challenging outlook for the auto sector in general.
We are raising our net profit forecast for 2009 from RM5.2 million to RM6.9 million, and from RM7.9 million to RM9.8 million for 2010, when the Proton Exora's impact will be fully felt. We have also assumed lower effective tax rates due to earlier tax credits and losses.
At 75 sen, the stock is trading on low price-to-earnings (P/E) multiples of 6.4 and 4.4 times for 2009-2010, respectively. Its market capitalisation is a mere RM44 million, of which RM5.7 million is in net cash. If we exclude net cash from its market capitalisation, the underlying business is implicitly valued at RM38.3 million — or just 2.9x our estimated earnings before interest, taxes, depreciation and amortisation (EBITDA) of RM13.2 million in 2010.