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Martinrea International Inc. (MRE : TSX : C$11.05) - Buy - Target:C$14.00 Q1/14: rebound underway; maintaining BUY rating; increasing target to C$14.00 (from C$13.00) BUY rated for results improvement We think Martinrea (MRE) has strong share price appreciation potential from returning margins to more normal levels. We expect the two current margin issues, underperforming assets and unusually high launch costs, to dissipate over the next one-to-two years. This should generate very strong EPS growth per our forecast. We believe Q1/14 performance was consistent with our thesis, as the company produced sequentially improved results, in part from improving underperforming operations. Sequential improvement in Q1/14 In-line with guidance, EPS increased to $0.21 in Q1/14 from $0.17 in Q4/13. MRE benefited from strong performance at Honsel and improved performance at low margin facilities. Further improvement expected in Q2/14 MRE guided to EPS of $0.27-0.31 in Q2/14. Importantly, guidance suggests a rough doubling of EPS in Q2/14 from MRE Classic (MRE excluding Honsel), which we believe implies an acceleration in profit improvement at underperforming facilities. Guidance was slightly stronger than we expected. Target increased on stronger forecast and less debt We boosted our forecast modestly due to the stronger than expected Q2/14 guidance. Our debt assumption is lower on our reduced working capital expectations. Our target was increased by our stronger forecast, lower debt and usual one-quarter valuation period roll forward. Relatively low valuation multiple Our unchanged 5.5x NTM EV/EBITDA (or 5.5x Q1/15E EV to Q2/15E-Q1/16E EBITDA) valuation multiple is 0.5x lower than the multiples that we use for Linamar and Magna and below the sector average, reflecting greater risk potential in our MRE forecast and MRE's smaller capitalization.