A Tale of Two Automotive Companies.

Mention the word “A Tale of Two Cities” and most probably, most of us would have heard about it somehow, somewhere and sometimes along the way during our lives. For those who are not keen about reading novels, they most probably wouldn’t know it at all. It is about the famous 1859 novel by Charles Dickens. Since then, many other books and movies’ titles beginning with “A Tale of Two ......” were published and produced from time to time.

One of them is “A Tale of Two Sisters”, a 2003 South Korean psychological horror film. What about “A Tale of Two Brothers”? Can anyone tell me about this? Sorry if you think this is another horror movie, you are wrong. It is about the adventure of the lions from Disney’s The Lion King. The list of “A Tale of Two ...” could go on and on.

But do you know that in Bursa Malaysia, there is also one “A Tale of Two .....” story? Is it? Yes,

it is. It is from yours truly. Introducing “A Tale of Two Automotive Companies”.

They are the newly listed Solid Automotive Berhad  and the bigger brother “veteran” APM Automotive Malaysia Berhad. Actually, both are in different business although both the registered companies’ names are almost the same except being different in the front name as Solid and APM only.

First, a little bit about

Solid Automotive Berhad

New kid-on-the-block Solid Automotive Berhad is an automotive parts trader and distributor. Listed on September 12th 2013 at an IPO price of RM0.56 sen. The company was founded in 1982 and has seven branches in Malaysia and one in Singapore and business into over 30 countries.

Currently, it had an inventory of 19 in-house brands, over third brands and more than 7,000 stock-keeping units.

Solid Automotive’s subsidiaries Solid Corporation, Twinco, Auto Empire, JBS and Uni Point are  involved in the trading and distribution of automotive parts and components as well as remanufacturing of automotive alternators and starters for the passenger and commercial vehicle segments in the automotive aftermarket in Malaysia and overseas.

Solid Automotive intends to pay approximately 40 percent of  profit after tax as dividends. Based on 2013 figures, this translate to dividend yield of 4.5 percent or 2.5 sen per share which I think is very a very decent rate of dividend.

What about APM Automotive

Holdings Berhad?

APM is a much bigger brother compared to Solid in terms of several areas including revenue, profits, earnings per share, dividend cash in hand and many more.

What does APM do?

It has a Suspension Division, Interior and Plastic Division, Electrical & Heat Exchange Division, Marketing Division and operations outside Malaysia in Indonesia, Vietnam, Australia and USA.APM has three joint-ventures in Indonesia which manufacture and distribute seats, interior parts and coil springs. Motor vehicles sales in Indonesia are expected to exceed a million units in 2013. In anticipation of this growing automotive market, the Group would be purchasing a 3 hectare land nearby to its existing operations during the current financial year for future potential businesses.

In Vietnam, the Group has two wholly-owned operations which manufacture and distribute leaf springs and seats.  On November 1st 2011, the Group entered into two separatjoint-venture agreements with subsidiaries of International Automotive Components Group SA for the setting-up of manufacturing facilities in Malaysia and Thailand.

The joint-ventures marked another milestone for the Group in

advancing its core capabilities of design, engineering wider

range of vehicle interior components, system to serve both

existing as well as new OEM customers in Malaysia and in the

ASEAN region.

In Malaysia, the new joint-venture company, APM IAC Automotive Systems Sdn. Bhd., was incorporated at the end of November 2011, with the Group having a 60% shareholding.

New cars sales recorded in 2012 was a record of 611,000 vehicles, 6,000 more sold in 2011. The local manufacturers association (MAA) released a 2013 forecast of 634.000 units which looks quite conservative, in a country with a still low circulating car park and a GDP expected up 5.6%.

So if you are an investor,

which company would you choose?

From an honest point of view, I cannot really say much about Solid because it is still a young and small company with a long way to go. But for APM, I found it as a very attractive company which has several “criterias” which I normally look for when investing in it.

APM has a growing cash-pile.

For one, it is cash rich with a big cash hoard of RM346 million with almost zero debts. Divided by its ordinary shares of 195,688 shares and that is a solid cash per share of RM1.77 as at end of June 2013.

APM is paying more and more dividends!

It has an excellent dividend payout rate. From a 14 sen dividend in 2007, it has increased to 32 sen in 2013 and looks to either maintain or even increase more for 2013 judging by its latest 2nd Qtr’s strong results. It has announced an interim 10 sen dividend and a special 30 sen dividend for its 1st half 2013 Financial Year. APM can easily afford to do so as its’ first half year profit is an earning per share of 32.2 sen. Annualised and that would be around 64 sen which means that a final dividend of 10 sen to 20 sen is there. For this type of good dividend pay out, APM must be classed as an income stock for those seeking above average dividend returns which is why I liked this stock.

If there is one point sharp investor must look out for, it is usually the gradual rise in dividends payout when its earnings is rising. It means the company is

willing to share the profits more with shareholders. This will attract more conservative shareholders looking for above average dividends (compared to bank’s fixed deposit rate). As a result, there will be less shares left in the open

market to trade as conservative shareholders are keeping the shares for the long term.

APM is 32.472% owned by Tan Chong Consolidated Sdn Bhd. A check on its 30 largest shareholders revealed that APM is hugely owned by many big institutional and unit trust funds, a proud testament to it.

Impressed by APM’s strong attraction, the writer purchased 1,500 shares at RM4.66 on November 29th 2012. Currently, APM is hovering around the range of RM5.70 at the time of writing.

The writer has qualified for two dividends since then (RM220.00 paid on June 28th 2013 and RM400.00 to be paid on September 30th 2013) since his purchase. The total dividends is RM930.00 (RM660.00 dividends multiplied by his 1,500 shares).