Investment Highlights

• We reiterate BUY on MBM Resources (MBMR) with a higher fair value of RM5.00 (from RM4.55), derived from an unchanged 9x target PE on revised 2022F earnings.

• MBMR’s 1QFY22 results were within our and consensus expectations. The group’s core net profit of RM54mil (+14% YoY, -50% QoQ) accounted for 27% of our and street’s FY22F earnings. We strip out a RM31mil gain from the disposal of the OMI Alloy (M) plant and machinery from our core net profit calculation.

• YoY, the group’s 1QFY22 core operating profit surged 81% underpinned by a revenue growth of 14%. The motor division’s operating profit jumped 2.3x on the growth of MBMR-related brands’ sales volume (Exhibit 3). Providing additional booster to MBMR’s bottom line is Perodua’s associate contribution which expanded by 17% YoY.

• Separately, the sequentially lower earnings were mainly due to seasonally high sales and the inclusion of investment tax allowance at Perodua’s level (estimated at RM90mil) in 4Q21.

• Moving forward, we believe MBMR is set to benefit from Perodua’s continuous effort to widen its product offerings. The introduction of the all-new Perodua Alza could be the next key catalyst for the group. A lack of competition in 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.

• Taking the view that demand for Perodua models is likely to be sustainable beyond the sales tax exemption period, we raise our sales volume forecast for Perodua (Exhibit 2). We also expect the introduction of the new Alza would help lift Perodua’s average selling price. Putting these into account, we increase FY22F–24F earnings by 8–10%.

• Nevertheless, we note that labour shortages, rising raw material prices and supply chain disruptions may pose downside risks to our fair value and earnings estimates.

• The stock is trading at an undemanding valuation of 5.7x 2022F PE vs. its historical average of 9.7x despite the improved outlook while offering a decent 4.8% yield.

Source: AmInvest Research - 26 May 2022