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Quarterly Report For The Financial Period Ended 30 September 2019

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Condensed Consolidated Statements Of Profit Or Loss And Other Comprehensive Income
For The Quarter Ended 30 September 2019 - unaudited

Income Statement Ended 30 September 2019

The above condensed consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the audited financial statements for the year ended 31 December 2018 and the accompanying explanatory notes attached to these interim financial statements.

Condensed Consolidated Statements Of Financial Position
As At 30 September 2019 - unaudited

Balance Sheet Ended 30 September 2019

The above condensed consolidated statement of financial position should be read in conjunction with the audited financial statements for the year ended 31 December 2018 and the accompanying explanatory notes attached to these interim financial statements.

Operating Segments Review

Statement of Financial Position

The Group's financial stability is reflected in its net assets per share, which grew from RM6.31 in 2018 to RM6.38 in the third quarter of the year. Likewise, the Group's Current Ratio improved from 2.8 times to 3.2 times (Current Ratio = Current Assets / Current Liabilities) as trade and other payables reduced by 15.7% or RM39.6 million compared to 31 December 2018. The Group's financial position remains comparatively robust with a net cash position (=cash and cash equivalents + other investments – bank borrowings) of RM271.3 million.

Statement of Cash Flow and Capital Expenditure

Due mainly to higher income tax payment and interest costs, cash from operating activities declined from RM46.9 million in the corresponding 9-month period of the previous year to RM38.0 million.

Effective 1 January 2019, interest income from the wholesale fund is no longer tax exempt, leading to a significant withdrawal of investment in unit trust (Q3'19: RM40.5 million ; Q3'18: RM122.7 million). Correspondingly, investing activities resulted a net cash of RM70.4 million.

As at 30 September 2019, the Group's capital commitment stood at RM53.7 million. The capital commitment will be funded by internally generated funds and/or bank borrowings.

The Group recognizes that sufficient cash reserves are essential in the pursuit of growth and expansion. Thus, the Group's liquidity remains intact as the Islamic Commercial Papers Programme and Islamic Medium Term Notes of up to RM1.5 billion in nominal value can be utilized for future capital investment, if and when required.

Analysis of Performance of All Operating Segments
Q3'19 vs. Q3'18

The Group's revenue rose by 14.5% in Q3'19 from RM336.0 million to RM384.7 million mainly due to higher demands from OEM customers of the Interior and Plastic Division, driven mainly by the commencement of content localization, involving amongst others, the supply of new parts and new model launches since the end of 2018 and beginning of 2019.

The Group's Profit Before Tax ("PBT") increased marginally by 1.7% to RM13.8 million in Q3'19, contributed mainly by our Interior and Plastic Division which recorded a 56.4% growth in PBT of RM7.9 million. Unfortunately, the Group's PBT was affected by higher losses sustained by our associate in Indonesia. The losses of our associate were mainly due to the cost incurred for staff retrenchment and restructuring exercises, the provision of stock obsolescence, expensed-off initial engineering and development costs for new model and higher operating costs.

Year-to-date 2019 vs. Year-to-date 2018

On a year-to-date basis, revenue increased by 16.7% to RM1,110.6 million from RM951.8 million a year ago. The Interior and Plastics Division remains as the Group's top revenue contributor with continued and strong demands from certain OEM customers.

However, despite such revenue growth, the Group's PBT was lower by 2.1% to RM51.9 million from RM53.0 million a year ago. This was mainly due to fragmented export sales coupled with rising production costs (especially raw material price for the first half of the year and energy cost) in Suspension Division. Higher operating costs incurred by our operations outside Malaysia coupled with losses sustained by our associate in Indonesia (as explained earlier) also contributed to a lower Group's PBT.

Suspension Division

Total Industry Production ("TIP") for the commercial vehicles for the Q3'19 and 9-month period declined by 18.5% and 11.2% from 11,570 units and 31,193 units to 9,428 units and 27,691 units respectively compared to the same quarter of last year. (Source: Malaysian Automotive Association or "MAA").

The Suspension Division (especially leaf spring operation) continued to experience lower revenue growth from both export and local OEM (in line with lower TIP-commercial vehicles), which resulted in a decline of revenue by 12.6% to RM50.0 million from RM57.2 million in the same quarter of last year.

Varying product mix, lower revenue and production volume and higher energy costs were factors that contributed to a lower PBT of RM0.7 million compared to RM1.5 million registered in Q3'18.

For the 9 months to 30 September 2019, the Suspension Division posted RM150.5 million in revenue, which was 9.4% lower than RM166.1 million registered last year. Likewise, the Division's PBT also declined to RM0.2 million from RM6.9 million a year ago, mainly due to reasons mentioned earlier and higher raw material costs (especially on steel) for the first half of 2019.

Interior & Plastics Division

The Interior & Plastics Division continues to achieve net double-digit revenue and PBT growth since beginning of the year. Its revenue rose by 29.2% to RM278.6 million from RM215.7 million in Q3'18, whilst its PBT registered a growth of 56.4% from RM14.0 million to RM21.9 million in the current quarter. The higher sales were contributed by the higher demands from certain OEM customers following the supply of new parts for localization content and new model launches since the end of 2018.

For the 9-month period commencing from January 2019, the revenue and PBT of the Division increased steadily from RM628.4 million to RM823.2 million and RM40.4 million to RM65.2 million respectively, largely due to the reasons mentioned earlier.

Electrical & Heat Exchange Division

The Electrical & Heat Exchange Division's revenue fell marginally by 3.1% to RM33.9 million in the current quarter from RM35.0 million due to lower demands from OEM customers. Despite lower sales, the Division's PBT improved from RM1.2 million to RM2.0 million in the current quarter due largely to the reversal of provision of costs.

On a year-to-date basis, the Electrical & Heat Exchange Division registered revenue of RM90.7 million, a reduction of 7.4% from RM97.9 million in the same period of last year. Lower revenue was mainly due to lower demands from OEM customers. Similarly, PBT also lower at RM2.7 million from RM5.1 million same period of last year. The weakening of Ringgit especially against Thai Baht impacted the Division's profitability for the year. Moreover, the higher margin recorded last year was due to positive price adjustment by its OEM customers.

Marketing Division

The Marketing Division's revenue decreased by 11.5% to RM60.5 million in the current quarter due to lower sales experienced for both local replacement market ("REM") and export. Local REM especially in East Malaysia faced decreasing demands resulting from the slowdown in infrastructure projects and logging activities. The slow-down in global economy, ongoing uncertainty in connection with "Brexit" and the impending snap election in the UK as well as the continuing trade tension between the US and China have invariably affected our export sales. Corresponding to the lower revenue, the Division's PBT decreased from RM2.5 million to RM1.0 million in Q3'19. The lower PBT was also caused by varying product mix, higher distribution costs and branding expenses.

Similar to the quarterly review, the Marketing Division recorded revenue and PBT of RM185.5 million and RM5.0 million, representing a decrease of 7.1% and 45.0% respectively against the same 9-month period of last year.

Non-reportable segment, Malaysia

This segment comprises mainly operations relating to revenue received from sources that include rental of properties in Malaysia, provision of management services, and engineering and research services for companies within the Group. Revenue from these services and sources form part of inter-segment elimination for the total Group's results (as depicted in Note A9). This segment also comprises the business of casting, machining and assembly of aluminum parts and components and distribution of motor vehicles to internal and external customers.

The Non-reportable segment's revenue decreased by 22.7% to RM20.4 million in the current quarter from RM26.4 million, largely due to lower sale from trading of motor vehicle. Trading of motor vehicle business recorded historical high in Q3'18 as a result of the festive-driven sales campaigns, new model launches and "tax holiday" in Malaysia. As a result of lower revenue, the Division reported a Loss Before Tax ("LBT") of RM0.6 million against a PBT of RM0.3 million in the same quarter of last year.

Consistent with the above quarterly results, revenue for the 9-month period of 2019 declined from RM62.7 million to RM61.5 million, whilst LBT increased further to RM2.1 million from RM1.3 million a year ago. Apart from impact of lower sales, high administrative expenses especially staff costs and lower billing of service fee had also impacted the division profitability.

Indonesia Operations

Indonesia Operations refer to the manufacture of suspension products such as coil springs, shock absorber and leaf springs as well as the Group's investment and participation in joint ventures and associate in Indonesia.

The Indonesia Operations' revenue decreased marginally by 4.6% to RM14.6 million from RM15.3 million recorded in Q3'18 mainly due to lower demands from OEM customers. Our associate in Indonesia suffered significant losses due to lower sales, expenses incurred in connection with staff retrenchment and restructuring exercises, provision for stock obsolescence, expensed-off initial engineering and development costs for new model and higher operating costs. Correspondingly, LBT of the Indonesia Operations worsened to RM8.3 million from RM3.9 million in the same quarter of last year.

On year-to-date basis, the Indonesia Operations' revenue declined by 7.0% to RM38.4 million mainly due to lower off-take of coil spring from certain OEM customers and lower export and local replacement market for leaf spring. Coupled with the rising cost of raw materials, lower production volumes and higher operating costs, especially due to depreciation and interest expenses, the Division's bottom line was negatively impacted.

Including the higher share of associate's losses, the Indonesia Operations registered higher LBT of RM14.8 million compared to LBT of RM7.6 million in the same period of last year.

All Other Segments

This business segment refers to our operations in Thailand, Vietnam, Australia, the United States of America ("USA"), Netherlands and Myanmar ("Operations Outside Malaysia").

The All Other Segments' revenue grew by 18.6% (Q3'19: RM39.1 million; Q3'18: RM32.9 million), mainly due to higher sales recorded in the USA, Australia and Vietnam. Despite higher revenue, LBT of All Other Segments increased to RM2.7 million from RM1.2 million in the same quarter of last year. This was primarily due to the one-off imposition of import duty and penalty by the custom authority on imported raw material resulting from the incorrect application of tariff code by our Vietnam operation. In addition, our joint venture business in Vietnam registered a loss in the current quarter compared to a profit in Q3'18 due to lower off-take from OEM customers, caused by delay in the launch of new model and lower car sale for existing models.

Similar to the quarterly review, the segment revenue increased from RM93.1 million to RM98.9 million on year-to-date basis, whilst registering a LBT of RM4.7 million compared to a minimum profit of RM26,000 a year ago. In addition to the reasons mentioned earlier, the All Other Segments' bottom line was also affected by the increase in engineering staffing costs by our operations in Australia and higher operating costs incurred by our USA units (caused by higher staff costs and rental).

Commentary On Prospects and Targets, Strategies and Risk

APM is principally involved in the design, manufacturing, assembly and production of automotive and mobility components. APM's main operation is located in Malaysia with presence in various other jurisdictions, covering USA, Netherlands, Australia, Thailand, Vietnam and the Republic of Indonesia.

In view of the nature of APM's business, changes in policies and regulations as well as economic, governmental, territorial and currency uncertainties are primary factors that could affect APM's performance.

Compared to 2018, the year-to-date total industry volume (TIV) for vehicles up to September 2019 is lagging marginally. TIV is down by approximately 2.63% (or 11,864 units), with 442,991 vehicles delivered in the first 9 months of this year compared to 454,971 units in the same period of last year. The slowdown is not unexpected considering that the relatively higher volume of vehicles sold last year was largely attributed to the three-month zero-rated GST holiday period from June to August 2018 when the country transitioned from GST-era to the SST-regime. The protracted trade tensions between China and the USA is also a factor in the decline.

However, the current lag is expected to be offset by an increase in sales due to the anticipated new product launches by various car makers towards the year end. These new launches include the introduction of the Completely Knocked Down (CKD) Proton X-70, the Mazda CX-8 and new face lift Mazda CX-5 which are expected to boost sales (The Malaysian Reserve, 25 September 2019).

In Thailand where APM is present, vehicle sales throughout the third quarter of 2019 are expected to contract as financial institutions there continue to tighten car loan conditions in line with the Bank of Thailand's warning (Bangkok Post 19 August 2019).

Meanwhile, as the uncertainties linked to "Brexit" continue to linger, coupled with the impending UK Snap Election on December 12, 2019, our business in Europe remains volatile.

As always, APM will continue to pursue other markets and businesses aggressively to mitigate and hedge against the decline.

Overall, the current downtrend is not something that is new or unexpected. APM has put in place measures to mitigate the risks associated with such downtrend as it aims to continue with its 5-year expansion plan prudently and cautiously. Going forward, APM remains optimistic and believes that its expansion plan can and will yield positive results for the Group.

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