Investment Highlights

• We maintain BUY on MBM Resources (MBMR) with an unchanged fair value of RM4.32, based on a 9x FY21F EPS.
• MBMR recorded its best-ever quarterly core profit of RM65.1mil in 3Q20. Overall, the group’s 9M20 core net profit of RM87.4mil came in at 61% and 67% of our and consensus full-year forecasts respectively. We deem this to be within our expectations but above consensus. We expect a sustained strong follow-through momentum in 4Q20 on the back of improved sales volume, boosted by the SST exemption. MBMR’s 9M20 core net profit dived by 43% YoY compared to 9M19’s RM152.8mil due to the movement control order (MCO) in 1H20.
• MBMR registered a lower 9MFY20 revenue of RM1.2bil (-23% YoY) largely due to lower contribution from its motor trading division (-22% YoY) as the MCO shut down all car showrooms and service centres throughout the nation from 18 March till 4 May 2020.
• Perodua sold a total of 145.0K units in 9M20 vs. 178.8K units in 9M19 (-19% YoY). We note that Federal Auto and Daihatsu & Hino’s sales volume were down by 26.1% and 15.0% YoY respectively. With that, MBMR’s motor trading division posted a lower 9M20 PBT of RM23.4mil (-2% YoY).
• MBMR’s auto parts manufacturing division also recorded a weaker revenue of RM107.5mil (-28% YoY) in 9M20. As a result, the division’s PBT slid to RM3.5mil (-60% YoY) from RM8.7mil in 9M20. We also noticed a smaller earnings contribution from Hirotako Acoustics (HASB) and Oriental Metal Industries (OMI) with lower sales revenues of 30.5% and 27.8% YoY respectively.
• Earnings contribution from MBMR’s associate was also weaker with a PBT of RM79.0mil (-75% YoY) in 9MFY20 compared to RM147.1mil in 9MFY19. We reckon this was due to Perodua’s smaller earnings contribution as sales and production volume shrank due to the MCO earlier this year.
• We note that the group’s associate earnings (mainly from Perodua) contributed to about 73% of MBMR’s PBT for 9M20.
• MBMR’s balance sheet remained stellar with a net cash position of RM163.1mil (41.7sen/share) as of 30 Sep 2020.
• We expect MBMR to continue its strong showing in 4Q20 – empowered by the SST exemption until 31 December 2020. Our BUY call is also premised on the belief that the sales volume of Perodua cars would be more encouraging compared to other brands because of its more attractive pricings for its model line-ups and value propositions.

Source: AmInvest Research - 20 Nov 2020