Investment Highlights

• We maintain our BUY call on MBM Resources (MBMR) with an unchanged FV of RM4.05 based on a FY20F PE of 9.0x.

• MBMR’s 1H19 core net profit was within with our expectations, accounting for 54% and 46% of our and consensus forecasts respectively. On a YoY basis, the group’s earnings surged by 26%YoY to RM93.7mil compared with 1H18’s RM74.6mil.

• The company recorded a one-off gain of RM24.8mil in 2Q19 from the disposal of its stakes in associate companies Hino Motor Sales Malaysia (HMSM) and Hino Motors Manufacturing Malaysia (HMMM). This reduced MBMR’s shareholdings in both HMSM and HMMM to 20.0% from 42.0%.

• In 1H19, the group’s motor trading division posted a revenue of RM973.0mil (+16% YoY) and a core PBT of RM15.0mil (+27% YoY). This was due to the favourable demand of Perodua vehicles namely the Myvi, Axia and Aruz. Overall, Perodua sold a total of 121.8K units in 1H19 vs. 117.1K units in 1H18, translating into a 4% YoY growth.

The improvement in MBMR’s motor trading division was also attributed to stronger vehicle sales from its subsidiaries of DMSB – Daihatsu & Hino trucks by 31% and DMMS Sales by 3%. Overall, the motor trading division is still the key revenue driver of the group, contributing to 89% of revenue and 13% of PBT in 1H19.

• The auto parts manufacturing division’s revenue rose by 10% YoY to RM116.7mil, translating into a higher PBT of RM6.4mil. This was underpinned by better performances from Hirotako Acoustics (HASB) and Oriental Metal Industries (OMI) with higher sales revenue of 23% and 10% respectively. The improvement in the auto parts manufacturing division was also due to stronger production demand.

• Most importantly, we witnessed an increased contribution from MBMR’s associate earnings, registering a PBT of RM93.3mil (+23% YoY) in 1H19 compared with RM76.0mil in 1H18. This was attributed to higher vehicle sales from Perodua and HMSM.

• MBMR’s net cash position improved to RM88.7mil from RM4.3mil in 1Q19. This was because the cash proceeds of RM74.4mil from the disposal of its 22% stake in both HMSM and HMMM were used to pare down its borrowings.

• The group has declared a dividend of 6.0 sen for the quarter, which translated into a 1H19 payout ratio of 18% and a dividend yield of 1.6%.

• We believe that MBMR will continue to shine as a proxy to Perodua as it protracts its position as the leader of market share in the local automotive space. We are excited about the group’s future expansion plans either organically or via more JVs with established names to further build on its distribution and auto parts business.

Source: AmInvest Research - 21 Aug 2019