Turnaround in car sales should bode well for automotive parts manufacturers like DVB: Bulk of DVB’s FY09 topline comes from the automotive business, which comprise of auto component manufacturing; trading and distribution of automotive parts; and accessories and manufacturing and assembly of bus and bus chassis. Currently DVB manufactures over 40 car component products -- with door mirrors, door latches and power windows as their top selling products. With a 2.5% y/y passenger car sales projected in 2010, from 2.2%y/y decline in 2009 driven by new launches and a better economic outlook shoul d bode well for automotive parts manufacturers like DVB.
¨ Higher contribution from foreign market segment: Their f oreign market segment contributes 15.0% to the automotive segment and 11.3% of the top line. DVB plans to make greater inroad into the foreign market i.e. Indonesia and Thailand. Currently their 2 largest foreign customers are PT Toyota Motor Manufacturing Indonesia and GM Thailand. Having secured the contract with PT Honda Indonesia in June09, DVB is expected to enjoy its impact from FY10 onwards. We project higher foreign market segment contribution to their automotive segment in FY10, i.e. 17% and 20% in FY11.
Contribution from bus manufacturing is expected to lift earnings: DVB ventured into commercial vehicle manufacturing after acquiring 51% stake from PT Asian Auto International (PT AAI) which is based in Indonesia in March 2008. PT AAI is involved in manufacturing and assembling of compressed natural gas (CNG) busses. The passenger bus is 18 meter long as opposed to the standard 12 meter long passenger bus in Malaysia. Contribution from the bus manufacturing division in Indonesia is about 4% of FY09’s 77% automotive segment. PT AAI has bid to build 25 new passenger buses which they are confident of securing. Assuming they secure the bid to build the 25 new passenger buses, this together with another 4 more buses currently being built would mean they would deliver 29 buses in FY10, a marked jump from 5 buses delivered
in FY09. With an indicating revenue of RM1.2mn per bus, we can expect contribution from bus to grow from RM6mn in FY09 to RMRM35mn in FY10 lifting its bottomline by RM5.3mn and add another RM0.06sen per share into our fair value.
Plantation growth from Indonesia: DVB ventured into oil palm plantation in FY99, focusing at Kuala Selangor, Malaysia with a total planted area of 1449ha. The oil palm yield stood at 25 ton per hectare, which is above the industry average of 19.2 ton per hectare. The high yield was due to the mature average age profile of above 20 years which cover over 78.9% of the total planted area. In 2006, DVB expanded their palm oil plantation into Indonesia, with a total planted area of 6843 ha and yield of 3 ton per hectare. End FY09, the total planted area in Indonesia climbed to 10,851ha, with yield improving to 12.96 ton per hectare. Nonetheless, the lower FFB yield in Indonesia vis-à-vis Malaysia was due to young tree age profile
which ranges from 6 to 11 years and with another 46.4% of their total planted area below 5 years. We expect FY10 FFB yield to improve to 14 tons per hectare driven by higher mature tree profile. Contribution from plantation to their top line improved from 12.1% in FY07 to 15.3% in FY09. We project earnings contribution to improve further to 16.6% in FY10.
