Investment Highlights

• We reiterate BUY on MBM Resources (MBMR) with a higher fair value of RM4.55 (from RM4.50), derived from an unchanged 9x target PE of revised 2022F earnings. We tweak 2022F–23F earnings higher by 2%, imputing a higher associate contribution from Perodua. The share is trading at an undemanding valuation of 6.1x 2022F PE vs. its historical average of 9.7x despite the improved outlook while offering a decent 4.8% yield (excluding the recently announced special dividend of 10 sen/share).

• MBMR’s 4Q21 results smashed earnings expectations, reporting a record-breaking quarterly net profit of RM109.6mil (3Q21: net loss of RM5.2mil, +40% YoY). This brings 2021 earnings to RM168.1mil, 34% and 30% higher than our and street’s estimates. Perodua’s associate contribution is better than predicted, jumping to its highest level ever at RM98.0mil (3Q21: loss of RM4.1mil, +53% YoY).
  We believe that the weighty Perodua Ativa’s contribution of 14% to Perodua’s total sales volume in 2021 has helped to rerate the carmaker’s earnings. Being priced relatively higher than most of its other models, Ativa has lifted Perodua’s average selling price. The continued strong demand for the model, without the need for strong marketing efforts, contributed to a sustainable margin.
   
• 4Q21’s operating profit improved significantly, contributed by both motor trading and auto parts manufacturing divisions, following the surge in MBMR-related brands’ sales volume (+216% QoQ) (Exhibit 3).
   
• Special dividend, a positive surprise. On top of an expected second interim dividend of 5 sen/share, MBMR also declared a special dividend of 10 sen/share to reward its shareholders.

• Outlook. We believe the upcoming all-new Perodua Alza could be the next key catalyst for MBMR. A lack of competition within the entry-level multi-purpose vehicle space bodes well for Perodua. The carmaker also planned to introduce another facelift for 2022 which could further support its sales. On a longer term, MBMR is set to benefit from Perodua’s product offerings’ expansion.

• Key risks. A labour shortage, rising raw materials price and supply chain disruption may pose downside risks to our fair value and earnings estimates.

Source: AmInvest Research - 28 Feb 2022