Investment Highlights

• We maintain our BUY call on MBM Resources (MBMR) with an unchanged FV of RM5.54 based on an FY20F PE of 11x.

• MBMR’s FY19 core net profit of RM188.9mil was in line with our expectations but below consensus estimates, accounting for 97% and 93% of our and consensus forecasts respectively. MBMR’s core net profit improved by 3% YoY compared to FY18’s RM183.1mil.

• MBMR registered a stellar FY19 revenue of RM2.1 bil (+10% YoY) largely buoyed by a prominent improvement in its motor trading division (+11% YoY). We believe that this was due to a sustained demand for Perodua vehicles (+4.9% YoY), especially for the Myvi, Axia and Aruz. Perodua sold a total of 240.3K units in 2019 vs. 227.2K units in 2018 (+6% YoY). We also witness an increase in sales volume of Daihatsu & Hino trucks (+9.4% YoY). However, Federal Auto’s sales volume disappointed, falling by 11.3% YoY. We suspect this is due to a high-base effect from 2018’s tax holidays which heavily boosted Volkswagen and Mitsubishi’s sales numbers throughout that period. Overall, MBMR’s motor trading division posted a lower FY19 PBT of RM21.5mil (-19% YoY) compared to FY18’s RM26.4mil. This was due to a write-off of one-off costs amounting to RM9.5mil for the year.

• MBMR’s auto parts manufacturing division also recorded higher revenue at RM220.5mil (+13% YoY) in FY19. However, the division’s PBT improved significantly after its cessation of OMI Alloy operations to RM11.2mil from RM0.9mil in FY18. We notice stronger earnings contribution from Hirotako Acoustics (HASB) and Oriental Metal Industries (OMI) with a stronger sales revenue of 16.1% and 2.7% respectively.

• Another key highlight is the increase in earnings contribution from MBMR’s associate, which recorded a PBT of RM187.8mil (+4% YoY) in FY19 compared to RM179.8mil in FY18. We reckon this is due to Perodua’s robust earnings contribution underpinned by its improved sales volume and product mix throughout the year. We note that the group’s associate earnings contributed to circa 83% to MBMR’s PBT for FY19.

• MBMR’s net cash position more than doubled to RM227.8mil in 4Q19 from RM105.5mil in 3Q19, reflecting a healthier balance sheet.

• A dividend of 7 sen has been declared in the quarter, bringing the total dividends for FY19 to 13.0 sen. FY19 dividend payout ratio is 23% translating into a dividend yield of 2.5%

Source: AmInvest Research - 27 Feb 2020