Investment Highlights

• We maintain our BUY call on MBM Resources with an unchanged FV of RM5.54 based on an FY20F PE of 11x. The recent pullback in share price provides higher upside for the stock as well as a cheaper entry for investors.

• MBMR’s 9M19 core net profit of RM149.9mil was in line with our expectations, accounting for 77% and 80% of our and consensus forecasts respectively. MBMR’s core net profit improved by 26% YoY compared to 9M18’s RM114.6mil.

• MBMR registered a 9M19 revenue of RM1.6bil (+14% YoY) largely buoyed by yje stellar improvement in its motor trading division (+15% YoY). This was due to a sustained strong demand for Perodua vehicles (+4.6% YoY) especially for the Myvi, Axia and Aruz models. Perodua sold a total of 178.8K units in 9M19 vs. 168.2K units in 9M18 (+6% YoY). We also witnessed an increase in sales volume of Daihatsu & Hino trucks (+15.1% YoY). However, Federal Auto’s sales volume was disappointing with a decline of 19.8% YoY. We believe that this was due to a high-base effect from 2018’s tax holidays which boosted Volkswagen’s and Mitsubishi’s sales numbers throughout the period. Overall, MBMR’s motor trading division posted an improved 9M19 PBT of RM23.8mil (+30% YoY) compared to 9M18’s RM18.3mil.

• MBMR’s auto parts manufacturing division recorded a marginal increase in 9M19 revenue to RM163.1mil (+2% YoY). However, PBT improved significantly to RM8.7mil after its cessation of OMI Alloy operations compared to a LBT of RM3.5mil in 9M18. We noticed an improved contribution from Hirotako Acoustics (HASB) and Oriental Metal Industries (OMI) with higher sales revenue of 19% and 6% respectively.

• Another positive note is the stronger contribution from MBMR’s associate earnings, recording a PBT of RM147.1mil (+28% YoY) in 9M19 compared to RM115.2mil in 9M18. We believe that this was contributed by Perodua’s robust earnings, which mitigated lower contributions from Hino Motor Sales Malaysia (HMSM) and Hino Motors Manufacturing Malaysia (HMMM) with a reduction in shareholdings in both associates to 20.0% from 42.0%.

• MBMR’s net cash position continued to improve to RM105.5mil from RM88.7mil in 2Q19, reflecting a healthy balance sheet.

• No dividends were declared for the quarter. We expect the group to declare a dividend of 14 sen in the next quarter (a total of 20 sen for FY19) after its recent adoption of a payout policy of 60% on company level. This translates into an attractive dividend yield of 5.4%–5.4% for FY19–20 respectively.

Source: AmInvest Research - 22 Nov 2019