Investment Highlights

• Reiterate BUY with a slight tweak to our fair value to RM4.50 (from RM4.51), derived from an unchanged 9x target PE of 2022F earnings (from 2021F). MBM Resources (MBMR) is set to benefit from Perodua’s consistent new model launches and longer term catalyst of product offerings’ expansion. The share is trading at an undemanding valuation of 6.3x 2022F PE vs. its historical average of 9.7x despite the improved outlook while offering a decent 4.1% yield.

• Earnings revision. We reduce our 2021F and 2022F earnings forecasts by 35.9% and 6.1% respectively, to reflect the laterthan-expected reopening of the economy in 3Q21 and the delay of the all-new Perodua Alza launch.

• 4Q21 earnings preview. We are expecting a strong earnings rebound in 4Q21 as sales of MBMR-related brands surged 216% sequentially, bolstered by pent-up demand after the sector’s supply chain reopened in mid-August, coupled with seasonally stronger year-end automobile sales. Our revised forecast implies 4Q21 earnings of RM67mil (vs. a net loss of RM5.2mil in 3Q21). Auto sales are expected to remain resilient in 1Q22 supported by the SST exemption.

• The all-new Perodua Alza is set to be introduced as early as April/May this year and will be built on the Daihatsu new global architecture (DNGA) platform. The model will likely be based on the Daihatsu Xenia (available in the Indonesian market) and Toyota Avanza. Despite being rather dated, (first launched in 2009), Perodua still managed to sell a decent 1,200 units/month of Alza in 2021. We believe this is due to the lack of competition within the entry-level multi-purpose vehicle space. Its only other direct competitor that is priced at a similar range is the Proton Exora which itself is long overdue for a generational change.

• What’s next. Perodua also planned to introduce two other facelifts (including the recently launched Perodua Myvi facelift) for 2022. Based on its product offerings, the Perodua Axia and Aruz are the oldest, making them the best candidates for facelifts next after the Myvi. Our bet is on the Axia given the Aruz facelift might cannibalize the sales of the upcoming new Alza.

• 2022 demand to remain resilient. Perodua has increased its 2022 sales target to 247,800 units in 2022 (vs. our target of 240,000 units), from 240,000 units previously. The new target implies a 30.2% YoY growth. Our channel checks suggested that the demand for Perodua cars remains healthy with most of its models having longer than a one-month waiting period. Besides the boost from the all-new Alza, demand for the Myvi facelift remains robust while the Ativa has proven to be a marketable model, with monthly average sales of 2,700 units since its launch in March 2021 vs. the Proton X50’s 2,330 units per month.

• Dealership outlets network revamp. Separately, Perodua is aiming to revamp its dealership network by increasing the numbers of its 3S (sales, services, and spare parts) outlets in the next four years to 70% of its total outlets by 2025, from 28% as of 2021. We believe this should further strengthen Perodua’s after-sales service and branding. Proton started a similar transformation in 2017, right after it formed a partnership with Geely and the results have been encouraging. Consumers are more receptive towards the brand which has contributed to improvement in sales in the past years. Being Perodua’s dealership with the largest network, MBMR’s wholly-owned subsidiary DMM Sales is expected to increase its capex to upgrade its outlets.

• Perodua is set to reveal its electric vehicle (EV) roadmap plan in 2022. Following the 12th Malaysian Plan, the government has approached Perodua on Malaysia’s plan to achieve the carbon-neutral status by 2050. Perodua and its partner, Daihatsu, are studying this matter and are expected to draw up a long-term strategy to achieve the goal. Meanwhile, Perodua is forecasting a more pessimistic EV adoption of 5% of total industry volume by 2030 vs. the government’s target of 15%. Perodua’s key challenge is ensuring its EVs are affordable to the mass market. Affordability has always been the brand’s key focus and due to technological hurdles, the production of EVs are costlier than the conventional internal combustion vehicles.

Source: AmInvest Research - 14 Feb 2022