Investment Highlights

• We maintain our BUY call on MBM Resources with a lower FV of RM3.41 (from RM3.48 previously) based on an FY20F PE of 9.0x. We trimmed our FY20/21 estimates by 7.2%/6.6% to RM148.0mil/RM171.7mil to account for a lower share of profit from its associates, Hino Motor Sales (Malaysia) (HMSM) and Hino Motors Manufacturing (Malaysia) (HMMM). The group recently announced the disposal of its 22.0% stake in both HMSM and HMMM to Hino Motor for a total cash consideration of RM74.4mil. The completion of this deal will reduce MBM’s shareholdings in HMSM and HMMM to 20.0% from 42.0%.

• MBMR’s 1Q19 core net profit was RM38.1mil (+15% YoY) after stripping a one-off gain of RM11.9mil from the sale of a property under its motor trading division. Core earnings was in line with our expectations, accounting for 25% and 24% of our and consensus forecasts respectively.

• In terms of core PBT, the group’s pre-tax earnings were RM49.9mil (+27% YoY) with stronger showing from all major business segments.

• The group’s motor trading division’s revenue grew by 17.1% YoY attributed to stronger vehicle sales volume (in units) from its subsidiaries, Daihatsu (Malaysia) (DMSB), DMMS Sales (DMMS) and Federal Auto (FA). DMSB’s sales for Daihatsu and Hino trucks improved by 8.9% YoY, and it surpassed the industry’s TIV growth of 5.9% YoY while DMMS’ Perodua vehicle sales rose by 5.2% YoY, underpinned largely by higher demand for the Myvi and Axia. Sales for the new SUV, Aruz, is expected to improve based on the strong bookings in recent months. Sales of FA shrank by 5.2%YoY due to slower demand for Volkswagen vehicles post-tax holiday which offset the improved demand from Volvo’s XC40. Excluding the aforementioned disposal gain of RM11.9mil, its core PBT for the motor trading division was RM5.6mil (+6.0% YoY).

• The auto parts manufacturing division’s revenue rose by 3.2% YoY and it posted a lower loss before tax of RM0.4mil. The improved performance from Hirotako Acoustics (HASB) and Oriental Metal Industries with higher sales revenue of 13% and 2% respectively reduced the division’s losses. 1QFY19 saw an increase in supply of auto parts to Perodua to meet backorders and for restocking purposes. The group is in the midst of closing down the operation of its alloy wheel plant by mid- 2019. The removal of OMI Alloy will be positive on the group’s earnings as losses from this segment have been dampening its profits.

• The group’s share of profits for its joint venture and associates’ improved to RM3.9mil (+16.3% YoY) and RM42.8mil (+16.4% YoY) respectively. This was on the back of Autoliv Hirotako’s higher sales revenue of 11.0% YoY.

Source: AmInvest Research - 24 May 2019