MIDF Sector Research

Author: sectoranalyst   |   Latest post: Tue, 17 Sep 2019, 10:25 AM


MBM Resources - Cheapest Proxy to Perodua TIV Expansion

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  • Key beneficiary of the Aruz
  • Perodua forecasted to hit record TIV
  • FY18F/19F earnings raised 16%/19%
  • Re-affirm BUY, TP raised to RM3.80

Turning more bullish. We reaffirm our BUY call on MBM and raise our sum-of-parts derived TP to RM3.80 (from RM3.15). MBM is now our top sector pick. In line with our sector report today, we raise MBM’s FY18F/19F earnings by 16%/19% to RM148m/RM165m – we are now 10%/16% above consensus. The upward revision is to reflect higher Perodua TIV forecasts for FY18F and FY19F; the former, given stronger than expected sales over the tax holiday period and the latter, driven by Perodua’s new SUV model, the Aruz. Our TIV forecast for Perodua was raised to 227K/241K units for FY18F/19F representing 11%/6% yoy growth respectively.

Why is the Aruz important? The Aruz plugs an important gap in Perodua’s model mix after having been absent from the SUV segment since 2009. The Aruz is now Perodua’s highest priced model - previously, the Alza was its highest, priced at RM51,490-RM62,690. Given the large ~RM10K gap in price points within a price sensitive segment, we think the Aruz is unlikely to cannibalise the Alza in a big way.

The Aruz also fills a vacuum in the also fills a vacuum in the <RM80K SUV segment - the Aruz would be the cheapest 7-seater SUV from the mainstream brands to be available in the market giving Perodua a strong advantage. The Haval H1 (5-seater SUV from a Chinese brand), although entailing cheaper pricing of RM59K-RM72K, has not really been selling in the market and is not a direct competitor given its much smaller size.

Cheap entry into Perodua. MBM is a cheap play into Perodua’s structural TIV growth from the Aruz, trading at just 6x FY19F earnings. Furthermore, MBM provides earnings leverage into Perodua as Perodua accounts for >90% of MBM’s earnings. The group’s dealership unit, particularly 51%-owned Daihatsu Malaysia Sdn Bhd is a key beneficiary of Perodua’s TIV expansion as DMSB is the largest Perodua dealership in the country accounting for circa 10% of Perodua TIV. MBM’s parts manufacturing units are also beneficiaries from supplies to the Aruz and potentially, Proton X70. National cars typically entail high local content of 70%-95% vs. 40%-60% for non-nationals.

Key catalysts. (1) Strong 6%yoy Perodua TIV expansion (FY19F) on the back of the Aruz to fill up a vacum in Perodua’s model mix (2) A recovery in industry production driven by the new national car launches. Risk to our call is weaker than expected demand for the Aruz and a weak Ringgit.

Source: MIDF Research - 16 Jan 2019

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