Investment Highlights

• We reiterate our BUY call on MBM Resources (MBMR) with unchanged forecasts and fair value (FV) of RM5.00/share, derived from FY22F target PE 9x (in line with its 3-year prepandemic average) and neutral ESG scoring of 3 stars.

• MBMR’s 2QFY22 results are expected to be stronger QoQ and YoY, mainly driven by higher Perodua sales. The carmaker reported sales of 65,719 units (+7% QoQ, +67% YoY) during the quarter. Mainly from its 22.6% equity stake in Perodua, MBMR’s share of associates is estimated to contribute 91% of the group’s FY22F net profit (Exhibit 1).

• Perodua’s sales are expected to further improve in 2HFY22 vs. 1HFY22 following the addition of the all-new Alza to its product line-up. As a baseline, the previous generation of Alza contributed 5–7%, or 1,200 units of Perodua’s monthly sales. The new entry-level multi-purpose vehicle will be making its debut tomorrow.

• The new model is available in 3 variants with a tentative pricing of RM62K (1.5 X), RM68K (1.5 H) and RM75K (1.5 AV). Compared to its peers such as the Mitsubishi Xpander and Honda BR-V, which cost RM23K–36K more, we deem the price as competitive (Exhibit 3).

• Being priced higher than its predecessor (Exhibit 3), this model will help to rerate Perodua’s average selling price. The new model’s margin would also be better as there is no need to offer discounts to attract buyers.

• Perodua registered more than 200,000 bookings as of 30 June (the end of the SST booking period). This translates into more than 7 months’ worth of sales based on the carmaker’s monthly production capacity of 28,000 units. Given that chip shortage is no longer its key concern, Perodua should be able to meet these orders before the registration deadline of end-March 2023, in our view.

• While other carmakers are forced to revise upwards their car prices, Perodua is upholding its commitment to provide value to consumers by maintaining prices for most of its models (Exhibit 4) despite rising input costs. The carmaker has cost-reduction measures in place to offset the impact, while production running at full capacity will bolster its operating leverage.

• The current inflationary environment may lead to consumers cutting back on discretionary spending. However, by focusing to provide great value to customers, Perodua stands to benefit from potential downtrading.

• Despite having more than 6 months of sales visibility, the stock is trading at an attractive valuation of FY23F PE of 5x vs. its 3-year pre-pandemic FY17–19 average of 9x.

Source: AmInvest Research - 19 Jul 2022