Investment Highlights

• We maintain BUY on MBM Resources (MBMR) with an unchanged fair value of RM4.62, based on a 9x FY21F EPS.
• MBMR’s 1HFY20 core net profit of RM22.2mil came in at 14% and 17% of our and consensus full-year forecasts respectively. We deem this to be within expectations as we expect a stronger 2H20 on the back of improved sales volume, boosted by the “SST holiday”. MBMR’s core net profit was down by 77% YoY compared to 1H19’s RM96.6mil.
• MBMR registered a lower 1HFY20 revenue of RM632.6mil (- 41% YoY) largely due to lower contribution from its motor trading division (-41% YoY) due to the movement control order (MCO), which resulted in closures of all car showrooms and service centres throughout the nation.
• Perodua sold a total of 74.2K units in 1H20 vs. 121.8K units in 1H19 (-39% YoY). We also witnessed a drop in sales volume of Daihatsu & Hino trucks (-34% YoY). Federal Auto’s sales volume also disappointed, falling by 43.2% YoY. With that, MBMR’s motor trading division posted a lower 1HFY20 PBT of RM6.1mil (-60% YoY) compared to 1Q19’s RM15.0mil.
• MBMR’s auto parts manufacturing division also recorded a weaker revenue of RM54.9mil (-47% YoY) in 1HFY20. With that, the division flipped into a loss before tax (LBT) of RM0.5mil from a profit of RM6.4mil in 1HFY20. We also noticed a smaller earnings contribution from Hirotako Acoustics (HASB) and Oriental Metal Industries (OMI) with lower sales revenue of 46.3% and 46.9% YoY respectively.
•  Earnings contribution from MBMR’s associate was also weaker with a PBT of RM23.6mil (-75% YoY) in 1HFY20 compared to RM93.3mil in 1HFY19. We reckon this was due to Perodua’s lower earnings contribution as sales and production volume shrank due to the MCO. We note that the group’s associate earnings contributed 83% of MBMR’s PBT for 1HFY20.
• Nevertheless, MBMR’s balance sheet remains strong with a net cash position of RM166.8mil (42.7sen/share) as of 1HFY20. The group declared a first interim dividend of 5 sen in the quarter.
• We expect MBMR to record a stellar recovery in 2H20 – empowered by the implementation of the “SST holiday” from 18 June till 31 December 2020. Our BUY call is also premised on the belief that Perodua cars would recover more quickly compared to other brands because of its more attractive pricings for its model line-ups and value propositions.

Source: AmInvest Research - 21 Aug 2020