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APM Automotive Holdings Berhad

APM Automotive Holdings Berhad provides and delivers original automotive parts for the process of assembling new vehicles usage as well as repetitive substitute parts. The company’s products are classified into three main allotments namely interior and plastics, suspension and electrical and heat exchange allotment. The interior and plastics allotment includes automotive seats, plastic parts, body side moldings, interior trims and door panels. Meanwhile, suspension allotment includes leaf springs, shock absorbers, coil springs, metal parts and gas springs. Finally, electrical and heat exchange allotment includes starter motors, alternators, wiper systems, distributors, engine management systems, air-conditioning systems, condensers, evaporators, compressors and radiators. These products are traded and exported to more than 40 countries worldwide.

Profile and Background

Company Background

APM Automotive Holdings Berhad has a corporate philosophy of “striving to be a world class automotive component manufacturer in terms of quality, cost and delivery and in making customer satisfaction our highest priority”. The company holds on this strong and powerful philosophy to run its business, expanding markets, building reputation and achieve the success of the company.

Besides, a successful business also based on its own short and long term vision and mission. APM launched its new corporate logo along with its 35th anniversary celebration in year 2009. The new logo has a discrete reverse white APM within a red oval that representing the world. APM brands of automotive parts manufacturer was aimed to make a bigger coverage in the regional area and also set the scene for global brand recognition and reputation.

On the other hand, APM’s goal has always been clear and straightforward which is to be a competitive regional automotive components manufacturer in the short or midterm and a global supplier in the long term. APM proves itself by turning from small Malaysian-centric automotive components manufacturer, to become a regional and global supplier.

Company History and Achievement

The following is the brief company history and achievement in timeline series:

1978 – Auto Parts Manufacturers Co. Sdn. Bhd. (APM-Co) was established to produce

leaf springs, shock absorbers, seats & radiators.

1980 – Official Opening of APM-Co plant by Dato’ Seri Dr. Mahathir Mohamad, then the

Deputy Prime Minister of Malaysia.

1983-85 – More parts manufacturing companies were launched.

1988 – Auto Parts Manufacturing Group turnover topped RM100 million.

1992-93 – All auto parts manufacturing companies assumed “APM” identity.

1994 – Established first overseas joint venture in China.

1997 – Annual turnover topped RM500 million.

1999 – APM Automotive Holdings Berhad was listed on the Main Board of Kuala

Lumpur Stock Exchange (KLSE)

2001 – APM achieved QS 9000 quality management system certification.

Honored with Ford’s 2000 World Excellence Award for Quality & Delivery.

2002 – Installation of 2nd Automated Robotic Parabolic Line.

Official signing ceremony of P.T. APM Armada Autoparts factory in Magelang,

Indonesia.

Official signing ceremony of joint venture agreement with Hefei Winking Asset

Co. Ltd. China

Official opening ceremony of Fuji Seats (Malaysia) Sdn Bhd factory in Bukit

Beruntung, Selangor.

2004 – All manufacturing subsidiary companies achieved ISO 14001 certification from

TUV.

APM secure contract to supply leaf springs & components to GM Holden,

Australia.

2005 – Established new spring manufacturing plant in Vietnam.

Construction of new distribution centre in Tanjung Malim, operations to begin

first quarter 2006.

All manufacturing subsidiaries achieved TS 16949 certified by 2006.

2008 – APM Shock Absorbers awarded the prestigious “Brandlaureate Award” for The

Best Brand – Manufacturing of Shock Absorbers.

Factors or policy that affects the company

“2009 proved to be an unprecedented year for the global automotive industry with auto sales severely affected by the worst global financial crisis that has devastated a majority of the world’s economies and saw vehicle production dropped to the lowest level in decades,” stated by Dato’ Tan Heng Chew, chairman of APM Automotive Holdings.

The automotive industry in Malaysia was not spared. However, the downturn in total industry production (TIP) in Malaysia for the first six months was low but swiftly recovered in the third quarter with further improvement in the last quarter of the year. As a whole, according to Malaysian Automotive Association, TIP volume only dropped by 7.8% from 530,810 units to 489,269 units compared with the previous year. Despite the challenges, the Group’s revenues dropped by a mere 2.6% from RM943.5 million recorded last year to RM918.5 million.

Based on the annual report of APM Automotive Holdings, the group had extremely good results for the financial year ended 31 December 2009 because the Group’s best ever pre-tax profit of RM100.6 million, surpassing RM100 million for the first time ever.

APM Automotive Holdings are mainly serves the local Original Equipment Market (OEM) and Replacement Equipment Market (REM) which made up 68% and 11% of revenue respectively. In Malaysia, APM’s operations which accounted for 88% of the total sales, recorded a high revenue than the previous year and pre-tax profit improved by 5.7% from RM86.3 million to RM91.2 million. This is due to the reason that the operations of this Group in Malaysia supply a wide range of automotive components for use in the manufacture of new vehicles (OEM), as well as for use as replacement parts. In order to improve APM’s aftermarket sales which is also called as REM, the Group conducted some technical training courses for workshop technicians in the variety parts of the countries targeting to develop the value of APM brand and at the same time enlarging the Group’s distribution network due to the reason that sales for the aftermarket which accounted for 13% of the total revenue fell marginally by 0.2% during the year.

In addition, APM Automotive Holdings also applies export sector in order to expand the Group’s distribution network. This can be proven that APM’s products are exported to more than 40 countries and the number of the exported products is expected to rise in the coming years. Export markets and overseas business collectively accounted for the balance 20%. APM exports replacement parts to dealers in Asia (35%), Europe (30%), Australia (13%) and United States (12%).

Besides that, APM’s growth lies in facility expansion. Over the longer term, APM’s growth will generate from overseas markets in Vietnam, Indonesia, and Thailand. To increase the Group’s product range, APM has recently expanded its plant facility in Vietnam. APM’s existing plant located at the Vietnam-Singapore Industrial Park currently produces leaf springs for the local market. The function of the new plant which is located beside their existing plant site will accumulate shock absorbers, seating and air-conditioners. The plant will initially provide to the local OEM market. The budgeted capex for this plant is estimated to be approximately US$10m (RM32m) and is expected to be fully operational by the fourth quarter of 2010. The opening of the plant in Vietnam will bring more chances for APM to expand its customer base due to the reason Vietnam already has 17 automotive manufacturers like Ford, Toyota and Honda operating there. Moreover, APM will be capable to achieve at least a 10% return on investment from this plant. As for their Indonesian counterparts, APM is also looking at more land to add to the three existing plants that they have in Jakarta which currently produces coil springs, seating and interior parts.

There are some factors which will affect a company’s export sector. Out of the many factors, war is the main cause that brings huge impact to the APM Automotive Holdings. For instance, red shirt army issue greatly influenced many aspects in Thailand such as a lot of manufacture and industry sectors being bombed and destroyed. This directly caused the export of APM Automotive Holdings in Thailand being greatly reduced which caused the huge loss of the Group’s revenue.

The second factor is the unexpected issue which is natural disaster. In the year of 2010, the serious haze problem which occurred in some of the Europe countries also directly caused the dysfunction of export in the particular countries. This is because the exportation through the waterway and skyway transport will be blocked by the serious haze. Thus, APM Automotive Holdings will temporarily stop all the export of their automobile components to the particular Europe countries due to the haze issue. This problem will greatly cause a big loss of the profit to APM Group.

On top of that, the third factor that will have impact to the company is the foreign currency exchange rate issue. As we know, currency exchange rate is volatile and unstable every second. Due to this problem, this will make APM explore in risk of gaining a lesser revenue. However, to avoid the risk in fluctuate of currency exchange rate, APM Automotive uses forward exchange contracts to hedge its currency exposure. Most of the contracts have maturities of less than one year. As at 2010, they hold RM64.4million of forward exchange contracts or approximately 10-15% of the APM Automotive’s annual currency exposure. The contracts will be rolled over at maturity if necessary. They also conducts annual price revision with its customers whereby any increase in cost of sales will be partly absorbed by their customers and likewise any decrease in cost of sales would be enjoyed by its customers.

APM Automotive Holdings is considered as a cash-rich company which enjoys an important advantage over their less fortunate competitors in these unsure economic times. In a recession, cash is king, or so the saying goes, but the fact is money alone yields paltry returns at current saving rates. Therefore, having lots of cash in the kitty gives the Group the flexibility to hunker down when business is slow and grab a deal when an opportunity arises. In conjunction with this statement, it is proven that half of APM Automotive Holdings’ current market values are sustained by cash as the recorded net cash position of the Group is RM180 million. Due to this factor, this caused the existing shareholders to have more confidence into APM Automotive Holdings because the Group has sufficient cash on hand to pay out dividends to the shareholders during the economy crisis such as recession and inflation. In addition, this reason will also attract more people in the public to invest in APM’s shares.

In 2006, APM Automotive gets two new contracts from National automaker Proton Holdings Bhd and Perusahaan Otomobil National Kedua Sdn Bhd (Perodua), to which APM Automotive will supply shock absorbers, coil springs, air conditioners and other electrical parts among others (Barrock, 2006). In 2009, Perodua, Proton, Toyota, Honda, Hyundai, Mercedes and Tan Chong are the main customers of APM Automotive which made up 51%, 23% and 12% of OEM sales respectively. Although APM Automotive does not have any long-term contracts with these companies, but their products are developed alongside these companies at the R&D stage, thus alleviating the risk of car manufacturers switching to other suppliers.

APM Automotive has a strong market position in the auto parts sector, being the leading player in Malaysia with an estimated market share of 12.6% based on revenue. They are commanding market position which their market size of the auto-parts sector in Malaysia to be RM7.5bn (Eugene, 2008). Due to this size, APM Automotive has an edge over its local competitors because of the wide product range offered and an established record as a reliable supplier to its customers. APM Automotive also generally has better economies of scale as well as bargaining powers in car makers.

Since 2009, APM Automotive becomes a good proxy to the motor sector that is currently into its second year of a new 3 -year cycle. A closer look at Malaysia’s Total Industry Volume (TIV) by the Malaysian Automotive Association (MAA) shows that the local motor sector has been moving in 3-year cycles since 2000 i.e. 2000-2002, 2003-2005, 2006-2008 and potentially see this again for 2009-2011(Appendix 1). In this chart, TIV growth is normally seen in the second and third years of the cycle (Malaysian Automotive Association, 2011). In addition, the replacement cycle for motor vehicle, they believed to be 5-7 years, may have accelerated.

APM Automotive revenue is highly correlated with total TIV as the local OEM and REM contribute 79% to total revenue. They are depends heavily on Perodua and Proton, which make up more than half of their OEM revenue while contribution from Tan Chong company, is still relatively low at 12%.

Furthermore, APM Automotive does not have any dividend policy but it is likely maintain a payout ratio of 25 – 35%. For 2010-11, APM Automotive is achievable given the positive outlook for divided projection of 16cent and 17cent.

In 2010, APM Automotive plans to spend approximately RM80m on capital expenditure which will be used for: 1) the final phase of the relocation and centralisation of its seating and interior facilities in Bukit Beruntung; 2) consolidation and centralisation of its existing Seri Kembangan facilities to the existing Port Klang site; and 3) the construction of its shock absorbers, seating and air conditioning facilities in Vietnam.

Due to our research, we found out APM Automotive has 30-35% currency exposure being the US$ followed by Yen. Approximately 15% and 12% of cost of sales is denominated in US$ and Yen respectively. Meanwhile, exports accounted for 11% of revenue, of which 4% is denominated in US$, 4% in Euro while the remaining 2% in other currencies. Some financial experts analysis that 1% appreciation in US$ and Yen would reduce APM’s earnings by 0.9% respectively.

In conclusion, APM Automotive Holdings is considered as the largest automobile components export company which produces three segments of products: 1) Interior and Plastics; 2) Suspension; and 3) Electrical and Heat, with the interior and plastics division being the highest-margin products. This company generates a lot of profits by exporting the automobile products not only in Malaysia, also to 40 other countries in the world, and the amount of revenue is expected to grow continuously in the coming future.

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