MBM Resources - Visit Note

Date: 23/04/2018

Source  :  HLG
Stock  :  MBMR       Price Target  :  2.70      |      Price Call  :  BUY
        Last Price  :  2.25      |      Upside/Downside  :  +0.45 (20.00%)

We left Autoliv Hirotako (AHSB) and Hirotako Acoustics (HASB) plant feeling positive. In FY17 we estimated both AHSB and HASB contributed c.12.4% to MBMR core profit. AHSB expects growth to be driven by side and curtain airbags as the market focuses on improving vehicle safety features. On the other hand, HASB growth will be driven by increasing demand for better ride comforts and experiences. For the past years, Hirotako was affected by Proton’s downturn. However, we expect the increasing volume of Perodua sales as well as Proton’s potential restructuring exercise (with Geely) to contribute to growing sales for Hirotako. Any cost fluctuations; both companies are able to pass back to the OEM. Maintain BUY on MBMR with unchanged TP of RM2.70.

We organized a visit to MBMR’s automotive components and parts manufacturing division under Autoliv Hirotako Sdn Bhd (AHSB) and Hirotako Acoustics Sdn Bhd (HASB). AHSB manufactures airbags, seatbelts and steering wheels, while HASB manufactures noise, vibration and harshness (NVH) products. In FY17 we estimated both AHSB and HASB contributed c.12.4% to MBMR core profit.

The outlook for both AHSB and HASB remains stable and as they benefit from the increasing demands from the upcoming new car launches in 2018 and 2019.

AHSB has most of its cost denominated in USD and THB as the company procures its raw material mostly from Thailand, USA and China. For HASB, its major raw materials are fiber and asphalt which are denominated in MYR and USD respectively. Management of both companies noted that they are able to pass on any cost fluctuations as a result of foreign currency fluctuation to the OEM.

Going forward, we expect AHSB and HASB continue to benefit from the recovery in TIV driven by improvement in consumer sentiment and new car model lineups in 2018. We forecasted TIV to grow to 588.1k units (+2.0% YoY) in 2018.

Forecast. Unchanged.

Maintain BUY, TP: RM2.70 MBMR is expected to leverage on sustainable sales of Perodua in Malaysia (as well as opportunity for export market). Perodua has invested into major manufacturing facilities for engine (with Daihatsu) and transmission (with Akashi Kikai and Daihatsu) to improve its cost structures and support its long-term growth. Furthermore, OMI has started to show positive signs of turnaround in FY17. Maintain on BUY MBMR with Unchanged TP of RM2.70, based on 20% discount to SOP.

Autoliv Hirotako Sdn Bhd (AHSB) is a joint venture between MBMR (51%) and Autoliv Inc (49%) to produce seatbelts, airbags and steering wheels. In Malaysia, AHSB’s market share was 50% for seatbelts, 40% for airbags and 30% for steering wheels in FY17.

For seatbelts and steering wheels, AHSB has secured contracts with few main clients namely, Proton, Perodua, Toyota, Honda, Nissan and Mitsubishi. However, for airbags, management mentioned that the airbags is being produced are only for Perodua and Proton. AHSB expects growth will be mainly driven by higher demand for side airbags and curtain airbags as the market continue to demand for improvement in vehicle’s safety feature. Management indicated the current plant rated capacity has the ability to address for the expected increasing products demand from OEMs and is not expected to for capacity expansion at least for in the near term.

The capex for single product development is c.RM3m, which will be priced into the subsequent actual products selling price to OEMs. AHSB will recover costs from OEMs in the event that volume fell below expectation AHSB procure most raw materials from Thailand, USA and China which are mainly denominated in USD and THB. Most contracts have cost past-through mechanism to OEMs to protect AHSB from foreign currency fluctuations.

Hirotako Acoustics Sdn Bhd (HASB) has an existing partnership with Autoneum and Nihon Tokushu Toryo (NITTOKU) to produce automotive dampers and noise, vibration and harshness (NVH) components. In FY17, NVH products made up 63% of HASB sales, followed by 33% from dampening sheet and 4% from felt (input for NVH products). Management shared the top 3 major customers for HASB are Toyota, Perodua and Honda. HASB is the largest supplier of dampers and NVH products with 80% and 20% market share respectively in Malaysia in 2017.

HASB Shared That Major Raw Material Used Are Fibre and Cotton (for Felt Production and Eventually NVH Products), Which Is Denominated in MYR and Asphalt (for Dampers Production), Which Is Denominated in USD. Similarly, HASB’s Contract Has Cost Past Through Elements to OEMs.

HASB Management Also Revealed That They Have Secured Few Contracts With Few Upcoming Models Which Are Scheduled to be Introduced in 2019.


Source: Hong Leong Investment Bank Research - 23 Apr 2018

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