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UPDATE REPORT 28 May 2012

Delloyd Ventures Bhd

Price : RM3.54

Market Capitalization : RM354.0mln

Board : Main Market

Sector : Industrial Product Bursa / Bloomberg Code: 6505 / DV MK Stock is Shariah-compliant.

Recommendation : BUY

Note: ^FY09 refers to Dec year-end. *FY11 comprised 15-month results. FY11 ratios are calculated based on annualized basis.

Last 12-Month Share Price Chart

Key Stock Statistics

FYE Mar FY11 FY12fEPS (sen) 65.0 45.4

P/E (x) 6.8 7.8

Net Div/Share (sen) 18.0 13.0

NTA/Share (RM) 3.79 4.11

Book Value/Share (RM) 3.90 4.22

Issued Capital (mln shares)

52-w eek Hi-Low (RM)

Major Shareholders:

Chung & Tee Ventures S/B

Chung Chee Sun 10.2

100.0

3.00 - 4.00

%

35.1

Per Share Data

FYE Mar FY09^ FY11* FY12f

Book Value (RM) 3.52 3.90 4.22 Cash Flow (sen) 55.7 83.0 63.4 Earnings (sen) 38.5 65.0 45.4 Net Dividend (sen) 6.0 18.0 13.0 Payout Ratio (%) 15.6% 27.7% 28.7%PER (x) 9.2 6.8 7.8 P/Cash Flow (x) 6.4 5.3 5.6 P/Book Value (x) 1.0 0.9 0.8 Dividend Yield (%) 1.7% 4.1% 3.7%ROE (%) 10.9% 12.8% 10.7%Net gearing (x) 0.1 0.0 0.0

Investment Highlights / Summary • Prominent automotive components OEM

with diversified earnings from oil palm plantation. Delloyd is a Tier-1 supplier to Proton and Perodua, as well as OEM for various foreign marques such as Toyota, General Motors, Naza, Honda, Hyundai, Nissan, Daihatsu, Ford, Suzuki, and Volkswagen. Top customers are Proton, Toyota and Perodua.

• Plantation rising to prominence. Delloyd ventured into oil palm plantation in 1999 and currently owns 15,871 hectares of oil palms, of which 90% is in Indonesia. FFB output in FY11 (15-month results) was 140,000 tonnes. The division contributed 42% to operating profit in FY11, and this is set to rise higher with more trees maturing and a strong CPO price.

• Profitable since inception. Delloyd has weathered through various business cycles over the past few decades, and remains profitable. Balance sheet is lean and healthy with negligible net gearing, backed by a NTA/share of RM3.96 as at December 2011.

• Risks include dependency on Proton and current changes to Proton’s management and shareholders may affect future business. Meanwhile, earnings from plantation are highly susceptible to fluctuations in the CPO prices.

• Earnings growth. We project FY12 net profit at RM44.0 mln. Both the automotive and plantation divisions remain the earnings growth drivers for the Group. Despite the challenging environment, automotive revenue has been growing steadily, a testimony to management’s business acumen. Meanwhile, earnings from plantation are set to continue rising in tandem with the increase in planted hectarage and tree maturity.

• Initiate coverage with Buy recommendation and a fair value of RM4.17. We like Delloyd for its capable management, steady growth in the automotive business despite challenging environment, good prospects from the plantation division, as well as its healthy balance sheet.

ZJ Research Investment Research for CMDF – Bursa Research

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Background Corporate profile

The Delloyd Ventures Bhd (Delloyd) Group of Companies is principally involved in three core businesses:- i) manufacture and sale of automotive components, ii) distribution of both passenger and commercial vehicles, and iii) oil palm plantation and milling.

Delloyd was incorporated in 1996 and was listed in November the same year on the Main Board (now known as the Main Market) of Bursa Malaysia Securities Bhd. While the investment holding company was set up in 1996, the Group’s history can be traced back to 1984 when its co-founder, Dato’ Sri Tee Boon Kee first established Delloyd Auto Parts (M) Sdn Bhd to import and distribute automotive component parts and accessories in Malaysia. The Group has since grown by leaps and bounds with revenue surpassing the half-billion mark in its latest financial year.

Delloyd has successfully transformed itself into a leading original equipment manufacturer (OEM) for major car makers and assemblers both in Malaysia and overseas. In addition, it has also extended its reach beyond automotive industry by venturing into oil palm plantation in 1999 to diversify its earnings stream. The foray proved to be successful with the plantation division now accounting for a significant portion of the Group’s profit.

Presently, Dato’ Sri Tee Boon Kee continues to helm the Group as the Group Managing Director. Meanwhile, the nine-member Board of Directors is led by General Tan Sri (Dr) Mohamed Hashim Bin Mohd Ali (Rtd) who serves as the Independent Non-Executive Chairman. There are another three independent directors on the board. Meanwhile, Dato’ Sri Tee’s spouse, Datin Sri Chung Geok Siew, and brother, Tee Boon Keat are Executive Directors while Datin Sri Chung’s brother, Chung Chee Sun takes on the role of non-independent non-executive director.

Delloyd’s substantial shareholders are Chung & Tee Ventures Sdn Bhd (35.1%) and Chung Chee Sun (10.23%). Major shareholders in Chung & Tee Ventures Sdn Bhd include Dato’ Sri Tee and his family members.

Corporate structure.

Note: Only direct subsidiaries are shown.

Co-founder continues to helm

the Group

History dates back to 1984

Successfully grown into a leading OEM

for major car makers

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Business

Delloyd’s three core business divisions are as follows:-

Automotive Components

The Group is one of the largest manufacturers of automotive parts in Malaysia. It produces and sells automotive components used in both national and foreign car marques. Apart from being a Tier-1 vendor to local carmakers, Proton and Perodua, it is also an OEM vendor to numerous foreign brands in Malaysia such as Toyota, General Motors, Naza, Honda, Hyundai, Nissan, Daihatsu, Ford, Suzuki, and Volkswagen to name a few.

Beyond the shores of Malaysia, Delloyd exports its OEM products to over 10 countries, including Indonesia, India, Thailand, Venezuela and Columbia. Some of the more prominent overseas customers are Toyota and Honda in Indonesia, as well as General Motors in Thailand.

Apart from OEM, it also has presence, albeit on a smaller scale, in the parts replacement market (REM), having established a solid distributor network that includes major retail chains such as Tesco, Aeon, Giant, Parkson, Mydin and EconSave.

In terms of revenue contribution, Delloyd’s top three customers by marque are Proton, Toyota and Perodua, which collectively made up 61% of 9MFY12 revenue. The top three customer list has stayed relatively similar over the past several years.

Proton30%

Toyota17%Perodua

14%

Naza9%

REM7%

Alado6%

GM2%

Others15%

Revenue Contribution By Customer (9MFY12)

Local OEM69%

Export OEM22%

REM7%

Others2%

Revenue Contribution By Market Segment (9MFY12)

Note: REM refers to replacement market

Counts numerous leading foreign car

makers as clients

Also exports its OEM products to over 10 countries

Top three customers: Proton,

Toyota and Perodua

Approximately 70% of turnover is from

the domestic market

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From the market segment perspective, domestic sales still dominate the Group revenue, contributing 69% to turnover as of 9MFY12. Export OEM business is at distant second (22%) while REM and others made up the remaining balance at 7% and 2% respectively.

Delloyd manufactures a comprehensive range of products, which can be categorized into two segments – Plastic products and Electrical & Electronic products.

The Group operates from four production facilities for the automotive parts – two in Malaysia (Klang and Tanjung Malim) with another one each in Indonesia and Thailand. The Klang and Tanjung Malim plants produce various automotive parts, and carry a number of quality certifications, amongst which are the ISO 9001, ISO 14001:2008, ISO/TS 16949, to name a few. The Indonesian facility meanwhile produces components such as rear view mirrors and sun visors, as well as equipped with a paint shop.

Its plant in Rayong, Thailand is a 40:60 joint-venture (JV) with Brose Asia to produce automotive components for the ASEAN region. The facility, which just commenced operation in 2011, is a signifcant milestone for Delloyd as it serves as a window to supplying more parts to the ASEAN countries. Furthermore, the JV also involves technical know-how transfer from Brose. Brose is a German automotive components group producing mechatronic systems and electric drives to over 80 car manufaturers. Its global turnover in 2011 was 4 billion Euros, with 19,000 employees at 53 locations in over 20 countries worldwide. For a start, the Thailand plant is currently producing window regulators for the Ford-Mazda JV, AutoAlliance Thailand.

Plastic Products

Exterior Interior

BumperBumper SkirtingRadiator GrilleOutside Door HandlesMud Guard / Mud FlapAir PressGear Knob

Door TrimPillar TrimLower TrimScuff PlateSun VisorInside Door Handles

Electrical & Electronic Products

Exterior Interior

Rear View Mirror With Or Without Side Turn Signal LampFender / Side Turn Signal LampLicense Plate LampFog LampDay Light Running Lamp

Inner Rear View MirrorsPower Window RegulatorsDoor Latches And ActuatorsDoor Locking SystemHigh Mounted Stop LampInner Room LampLuggage Compartment LampBack Up Lamp Switch

Offers a wide range of products

Four manufacturing facilities:- 2 in

Malaysia and 1 each in Indonesia and

Thailand

JV with Brose in Thailand, a renowned

German automotive components

manufacturer

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Within the Automotive division, Delloyd is also involved in the production of commercial vehicle, having ventured into bus manufacturing through the acquisition of 51%-stake in Indonesia-based PT Asian Auto International (PT AAI) in March 2008. PT AAI manufactures and assembles bus chassis as well as 18-meter high-floored articulated compressed natural gas (CNG) buses under the “KOMODO” brand for the bus rapid transit system in Jakarta, Indonesia.

In June 2009, PT AAI was further awarded the exclusive importer and distributor rights from Beiqi Foton Motor China to import and distribute Foton’s buses, bus chassis or sub-components.

The rationale for the venture is to tap into the commercial vehicle growth market in Indonesia, with the prospect of supplying to other countries in the ASEAN region, including Malaysia.

Delloyd has been securing relatively healthy orders for the KOMODO buses, with 18 units in 2008, 4 in 2009, 25 in 2010 and 23 in 2011. It has so far delivered 58 buses between 2008 and 2011. It has a plant in Indonesia that manufactures the KOMODO bus. Located in Bogor, south of Jakarta, it boasts a production capacity of five Komodo buses and five CNG/diesel chassis per month.

Vehicle Distribution

Complementing the components manufacturing business is Delloyd’s vehicle distribution arm. The Group currently distributes various marques such as Proton, Suzuki, Hyundai and Brilliance Auto’s Jinbei vans.

At present, this is a small division in terms of revenue and profit generation to Delloyd. On average, vehicle distribution contributed approximately one-tenth to the Group turnover, and had been marginally loss-making over the past several years save for FY11. The losses were attributed to declining sales as a result of lack of new model introduction by Hyundai. In order to mitigate the problem, management secured the distributorships of Proton and Suzuki to increase its product offerings. It also started distributing China-made Jinbei commercial vans in early 2010. These moves proved fruitful with the division returning to black in FY11 with a marginal profit of RM0.6 mln.

Despite the seemingly dismal performance, management views the vehicle distribution business as a strategic positioning for future growth. With the ongoing trade liberalization under AFTA, Delloyd would be poised to secure new distributorships, franchise rights and dealerships for other vehicle makes in the near future, underpinned by its track record, experience and existing car showrooms.

Plantation

In a bid to diversify its earnings base and having identified plantation as a new growth engine, Delloyd acquired 1,449 hectares of Sungai Rambai oil palm estate in 1999. All the 1,449 hectares are currently planted, with 83% matured trees producing approximately 25,000 tonnes of fresh fruit bunches (FFB) per annum. To ensure production sustainability, it is planning to replant approximately 100 hectares per year over the next few years, with the target to complete replanting trees that are more than 25 years by 2021.

Also manufactures commercial bus in

Indonesia

Receives healthy orders to

manufacture the KOMODO buses

Distributes Proton, Suzuki, Hyundai and Jinbei vans

Strategic positioning to secure new

distributorships and dealerships in the

future

Ventured into plantation in 1999 to

diversify earnings

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Buoyed by its success in Malaysia, the Group went on a much larger scale by acquiring a 60%-stake in PT Rebinmas Jaya which owns three oil palm plantations in Pulau Belitung, Indonesia, measuring a total of 14,422 hectares. This brings Delloyd’s oil palm ownership to 15,871 hectares.

In Indonesia, approximately 11,302 hectares or 78% of the 14,422 hectares are currently planted, of which 8,886 hectares or only 61.6% are matured oil palms. Management indicated that it targets to complete planting by 2015.

FFB production in Indonesia grew from 18,921 tonnes in 2006 to over 85,000 tonnes in 2011 as planted acreage increase and more trees are maturing. At the same time, yield too expanded from a mere three tonnes/hectare to 16 tonnes/hectare during the same period.

Collectively, the plantation unit now produces approximately 110,000 tonnes FFB per annum. The output is set to rise much more as more trees mature and management anticipates FFB production to reach 200,000 tonnes by 2015.

Note: 2011 and 2012 figures are annualized from 15 months and 9 months respectively for

comparative purpose.

In terms of yield, Malaysian plantation by comparison produces better yield than Indonesian plantation, as displayed in the chart below. This, according to management, is principally due to differences in soil and weather condition. Nevertheless, it believes with proper care and planting technique, as well as more trees are maturing, the yield should rise to between 18-19 tonnes per hectare in the next two years.

(hectare) (%) (hectare) (%)Total Planted Area 11,302        78.4% 1,449        100.0%Immature area (<= 5 years) 2,416           16.8% 245            16.9%Mature area (6‐15 years) 8,886           61.6% 1,202        83.0%

Nursery 6                   0.0% 2                 0.1%Unplanted Area 1,521           10.5% ‐             0.0%Development Area 1,593           11.0% ‐             0.0%Total 14,422        100.0% 1,449        100.0%

Indonesia Malaysia

26  25 30  29  25  24  25 

19 

34 44 

75 86  88 

82 

45 

59 

75 

104 111  112 

107 

‐10 20 30 40 50 60 70 80 90 100 110 120 

2006 2007 2008 2009 2010 2011* 2012*

tonn

es ('000)

Plantation Output (FFB)

FFB production  ‐ Malaysia FFB production  ‐ Indonesia

Total production

Currently owns 15,871 hectares of oil

palm plantation in Malaysia and

Indonesia

Approximately 80% of land in Indonesia

is planted

FFB production set to increase to

200,000 tonnes by 2015 from the

current 110,000 tonnes

Better yield in the Malaysian plantation

due to soil and weather condition

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Note: * Based on rolling 12-month basis; ^ 9 months from April 2011 – December 2011

Delloyd also operates its own mill in Indonesia, which began operation in May 2010. The RM40-million mill has a capacity to process up to 90 tonnes of FFB per hour. Currently, it processes its own FFB output as well as those from the surrounding smallholders into CPO and palm kernels.

We understand management is constantly on the lookout to acquire more oil palm plantation both in Malaysia and Indonesia to add to its existing landbank. In particular, it is looking for a minimum size of 1,200 hectares brown field plantation with part-mature and immature trees for a quicker turnaround.

Financial Highlights Delloyd has been sustaining its profit track record since listing in 1996. In fact, we understand from management that the Group has been profitable since its founding days, weathering through numerous economic crisis and business downturns.

(Please note that there was a change in the financial year from December to March, as announced in August 2010. As a result, there are no FY10 results while FY11 results comprised 15-month performance from 1 January 2010 to 31 March 2011).

Note: * FY11 refers to a 15-month performance due to change in financial year end.

18.9 19.4

24.5 25.2

20.8 20.6 20.8

3.05.2

7.3

13.014.8

16.5

11.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2006 2007 2008 2009 2010 2011* 2012^

FFB Yield (tonne/hectare)

Yield ‐Malaysia Yield ‐ Indonesia

201  228  191 274  285 

190  215 290  286 

510 

13%16% 16%

9%11%

6% 6% 7%

12% 12%

0%

5%

10%

15%

20%

‐

100 

200 

300 

400 

500 

600 

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY11*

RM mln

Historical Financial Performance

Revenue Net profit Net profit margin (RHS)

Profitable since inception

Has own palm oil mill in Indonesia

On the lookout to acquire more

plantation land

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Delloyd’s group performance prior to FY09 was largely a reflection of its automotive division as contribution from the plantation segment was minimal until then. In the early 2000’s, the Group chalked up healthy net profit margin that averaged approximately 15%, principally due to the robust performance of the local automotive industry backed by a strong economy.

However, between FY04 and FY08, its profitability deteriorated with net profit margin declined to a low of 6% in FY06 due to a host of challenges which include escalating raw materials prices, higher petrol prices, cost-down initiatives from customers, intensified competition from a more liberalized environment, decline in total industry volume (TIV) in FY06 and FY07, and continued losses from its vehicle distribution segment.

The Group’s prospect has since improved greatly from FY09 to present. For the automotive division, segmental profit margin rose to 16%-17% level in FY09 and FY11 from the low of 9% in FY06. Management credited the achievement to effective cost down initiatives, continuous production efficiency improvements, successful penetration into foreign (export) OEM markets and a robust TIV in 2010.

It is also heartening to note that the vehicle distribution business has finally turned in a profit in FY11, albeit a small one at RM0.6 mln, after being loss-making for a number of years. With more marques under the distribution stable, coupled with a new management team in place in the division, we look forward to increasingly better performance in the coming days.

Note: * For comparative reason, FY11 revenue has been annualized from 15 months, while TIV figure refers to 2010 TIV.

On the other hand, the plantation segment too has risen to significance in terms of profit contribution from FY09 onwards. Prior to this, profit from plantation division had historically amounted to approximately one-tenth of Delloyd’s segmental profit. Nevertheless, with fast rising FFB tonnage from more maturing trees, coupled with strong CPO prices, this division contributed 27% and 42% of the Group’s operating profit in FY09 and FY11 respectively.

183 147  161 

230  221 

295 

91 30  27  20  20  46 

552

491 487

548 537

605

200

300

400

500

600

700

‐

50 

100 

150 

200 

250 

300 

350 

FY05 FY06 FY07 FY08 FY09 FY11*

TIV ('000)

Revenu

e (RM mln)

Relationship between TIV and Sales of Auto Parts & Vehicle Distribution

Auto parts Vehicle Distr TIV (RHS)

Healthy 15% net profit margin in the

early 2000’s

Rising cost pressures dragged

net margin lower between FY04-FY08

Profitability has since improved

following implementation of various measures

Vehicle distribution turned in a small

profit in FY11

Plantation accounted for 42% of operating

profit in FY11

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The two charts below illustrate the segmental revenue and profit contributions of the Group’s core businesses:-

Note: * FY11 comprised 15-month performance due to change in financial year end.

Note: * FY11 comprised 15-month performance due to change in financial year end.

From the revenue perspective, the automotive division has always been and will continue to be the anchor contributor. Contribution from the plantation segment has gradually grown over the years and currently made up approximately one-sixth of turnover. However, at the segmental profit level, plantation generated a significant portion of the profit at 42% in FY11, due to the prevailing strong CPO prices. The chart on the following page provides yet another dimension to each division’s profitability.

0%

20%

40%

60%

80%

100%

FY05 FY06 FY07 FY08 FY09 FY11*

Segmental Revenue Contribution

Automotive Vehicle Distr Plantation

‐20%

0%

20%

40%

60%

80%

100%

FY05 FY06 FY07 FY08 FY09 FY11*

Segmental Profit Contribution

Automotive Vehicle Distr Plantation

Still, automotive remains the anchor revenue and profit

contributor for now

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Note: * FY11 contained 15-month performance due to change in financial year end.

Delloyd’s operations are backed by a solid and healthy balance sheet. Net gearing is fairly negligible at 0.06x as at end-December 2011, backed by a BV/share of RM4.07.

Earnings Outlook We are generally positive on Delloyd’s prospects and believe both the automotive and plantation divisions will continue to drive the Group’s earnings going forward.

The Malaysian Automotive Association (MAA) has forecasted a TIV of 615,000 vehicles for 2012, underpinned by the estimated GDP growth of 4%-5%, affordable interest rate environment, sustained consumer confidence level, expected new model rollouts and extension of tax incentives for hybrid and electric cars. This augurs well for Delloyd as historically, its automotive earnings are positively correlated to the TIV.

On the flip side, we note the operating environment remains challenging with rising raw materials cost and the responsible lending guidelines by Bank Negara Malaysia (BNM) weighing down the automotive sector’s growth prospects. In mitigation, we opine the experienced and hands-on management at Delloyd is capable of steering the Group through the tough environment.

Meanwhile, the CPO price that has been sustaining above RM3,000/mt since late 2010 certainly bodes well for the outlook of the plantation sector. With the planted area continues to rise till 2015, coupled with rising tree maturity, earnings from the plantation division is set to remain strong in the foreseeable future. Nevertheless, we are also cognizant that droughts and fluctuation in the commodity prices could affect profitability.

For FY12, we project Delloyd to post a revenue and net profit of RM460.0 mln and RM44.0 mln respectively. Our estimates represent a slight net profit contraction of 6.6% y-o-y on a turnover growth of 12.7% y-o-y, over annualized FY11 performance. The projected net profit decline was mainly attributed to our expectations for a softer 4QFY12 performance due to effects from the BNM’s responsible lending guidelines, fewer working days arising from festive celebrations, and lower plantation earnings from the drought in Indonesia.

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

FY05 FY06 FY07 FY08 FY09 FY11*

Segmental Profit Margin

Automotive Vehicle Distr Plantation

Solid balance sheet with negligible net

gearing

Both automotive and plantation will

be earnings growth drivers

Capable management to lead

the Group through the current

challenging environment

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Investment Risks Dependency on Proton. Proton has historically been Delloyd’s largest customer in the Automotive division. As such, Proton’s sales performance has a direct impact on Delloyd’s bottom line. And the recent changes in Proton’s management and shareholders following the acquisition by DRB-Hicom Bhd may potentially have an implication on the Group’s future sales to Proton.

Fluctuations in CPO prices. The plantation division has grown into high importance at Delloyd, having contributed approximately 40% to the Group’s operating profit in FY11. The performance of the division, however, is heavily dependant on the CPO prices and fluctuations in CPO prices would have a significant impact on Delloyd’s bottom line.

Low share trading liquidity. Delloyd’s historical daily average share traded volume for the past 12 months is approximately 35,000 shares only. The stock generally has low share trading liquidity and this may potentially result in significant share price swings.

Valuation

There is no direct public-listed peer comparison to Delloyd given its exposure to the two different industries of automotive and plantation. Nevertheless, considering the automotive sector is still the anchor profit contributor to Delloyd, we have listed below several peers in the automotive components manufacturing to provide a perspective on the size and profitability of the operations. From the table, Delloyd’s net profit margin appears to be highest, while the average forward PER is approximately 7x for the sector.

Note: Delloyd’s revenue and net income figures comprised 15-month results due to change in financial year end.

Meanwhile, the Plantation Index is currently trading at PER of 11x. Using a sum-of-the-parts approach, we value Delloyd by pegging our forecast FY13 automotive and plantation earnings to a PER of 7x and 10x respectively and arrive at a fair value of RM4.17. Note that our target 10x PER ascribed to the plantation earnings includes a 10% discount to reflect the holding company discount, considering Delloyd is still widely perceived as an automotive components manufacturer by investors.

There have been some talks in the past on the possibility of Delloyd spinning off its plantation business and float it on the Bursa Malaysia. In our discussion with management, it remains noncommittal on the plans at this juncture. Nevertheless, we opine that should the plan materializes, it would unlock the value of its plantation business and increase the value of the Group as a whole.

On another note, we observe that Delloyd has been actively engaging in share buyback activities over the past few years and has currently accumulated a total of 3.0 mln treasury shares with an average price of RM2.70/share. We understand management is currently weighing its options between distributing the treasury shares as dividend and disposing the shares in the open market to

Company

Share price(RM)

PER(x)

Fwd PER (x)

P/BV(x)

Mkt Cap (RM mln)

Revenue(RM mln)

Net inc(RM mln)

Net margin

(%) Delloyd Ventures 3.54 6.8 7.1 0.9 354.0 510.3 58.9 11.5%APM Automotive 4.76 7.8 7.2 1.2 959.6 1,182.1 119.9 10.1%New Hoong Fatt 2.30 8.7 n/a 0.6 172.9 215.6 19.7 9.1%EP Manufacturing 0.78 3.3 5.3 0.4 129.4 577.1 38.1 6.6%

Peer comparison for automotive

components manufacturers

Derives a fair value of RM4.17

Wild card: spinning off the Plantation

business

Active share buyback activities

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Analyst: Nicole Tan Yoke Ping (nicole@zj.com.my)

realize the profits.

Recommendation

We recommend a Buy on Delloyd with a fair value of RM4.17, representing a potential upside of 18%. Based on our dividend estimate of 13 sen for FY12, the net yield is healthy too at 3.7%.

We like Delloyd for its i) experienced and hands-on management who has steered the Group through the peak and trough cycles and remains profitable, ii) slow and steady earnings growth in the automotive components manufacturing business despite the highly challenging environment, iii) potential earnings growth from the plantation sector as planted hectarage and tree maturity increase, and iv) lean and healthy balance sheet.

P&L Summary

^Refers to December year-end. * FY11 contained 15-month performance due to change in year-end. Source: Company, ZJ Research

Balance Sheet Summary

Source: Company

FYE Mar (RM mln) FY09^ FY11* FY12f FY13f

Revenue 286.3 510.3 460.0 516.1

Operating Profit 45.4 88.2 68.1 79.0

Net Int Exp (4.5) (9.8) (6.8) (7.8)

Pre-tax Profit 44.2 84.9 64.4 74.6

Eff. Tax Rate 13.0% 21.0% 20.0% 20.0%

Net Profit 33.8 58.9 44.0 50.2

Operating Margin (%) 15.8% 17.3% 14.8% 15.3%

Pre-tax Margin (%) 15.4% 16.6% 14.0% 14.5%Net Margin (%) 11.8% 11.5% 9.6% 9.7%

FYE Mar (RM mln) FY09 FY11 9MFY12

Total Assets 504.28 563.09 608.9

Non-Current Assets 325.9 345.8 377.3

Current Assets 178.4 217.3 231.6

Current Liabilities 60.0 89.3 114.0

Long Term Liabilities 122.4 87.7 75.6

Share Capital 88.9 97.0 100.0

Shareholders' Equity 309.5 367.1 395.0

Buy recommendation

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RATING GUIDE BUY Price appreciation expected to exceed 10% within the next 12 months

SELL Price depreciation expected to exceed 10% within the next 12 months

HOLD Price movement expected to be between -10% and +10% over the next 12 months from current level

DISCLAIMER This report is for information purposes only and has been prepared by ZJ Advisory based on sources believed to be reliable at the time of issue of this report. We however do not give any guarantee as to the accuracy or completeness of the information provided. Any opinions or estimates in this report are that of ZJ Advisory as of this date and are subject to change without notice. ZJ Advisory has no obligation to update its opinion or the information in this report beyond the scope of participation under the CMDF-Bursa Research Scheme. ZJ Advisory and/or its directors and staff may have an interest in the securities mentioned.

This report is under no circumstances to be construed as an offer to sell or a solicitation of an offer to buy any securities. Investors should seek financial regarding the appropriateness of investing in any securities discussed or opined in this report. Investors should understand that statements regarding future prospects may not materialize. This report may contain forward looking statement and forecasts, which are based on assumptions that are subject to uncertainties. Any deviation from the expectations may have adverse effect on the projections and prospects contained herein. ZJ Advisory accepts no liability for any direct, indirect or consequential loss arising from the use of this report.

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