Investment Highlights

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

• We make no changes to our core earnings estimates as group’s 1HFY22 core net profit of RM112mil (+75% YoY) was within expectations, accounting for 51% of our FY22F earnings and 54% of consensus. We exclude an RM8mil gain from the disposal of the OMI Alloy (M) plant and machinery from our core net profit calculation. For comparison, 1H accounted for 42%–50% of FY18–FY19 (pre-pandemic period) core net profit.

• MBMR’s 2QFY22 core net profit rose 8% QoQ to RM58mil, driven mainly by a stronger performance of the motor trading division and higher associate contribution. The motor trading division’s outperformance was mainly attributed to the higher sales volume of MBMR-related brands (Exhibit 2). In line with this, the division’s revenue grew 19% QoQ to RM485mil.

• The 7% QoQ growth in associate contribution was also in tandem with the growth in Perodua sales (+7% QoQ) during the quarter. Separately, on top of the 6 sen/share interim dividend, MBMR also declared a special dividend of 10 sen/share following the disposal of the alloy wheel plant.

• Moving forward, Perodua’s sales are expected to be supported by its robust order book (>240,000 bookings as of end-July) as well as deliveries of the all-new Alza. The entry-level multipurpose vehicle received a positive response from consumers with 39,000 bookings to date.

• In addition to that, in line with our view, demand for Perodua cars looks healthy even after the sales tax (SST) was reintroduced starting July 2022. The national automaker collected more than 24,000 bookings during the month, signifying that the SST reintroduction may not have dampened the demand for new cars.

• On the supply side, given that chip shortage is no longer its key concern, Perodua should be able to fully capitalise on the burgeoning demand. While the current inflationary environment may lead to consumers cutting back on discretionary spending, Perodua stands to benefit from potential downtrading by customers with its cars that are value for money, in our view.

• Valuation-wise, despite having more than 6 months of sales visibility, the stock is trading at an attractive valuation of FY23F PE of 5.6x vs. its 3-year average of 9x.

Source: AmInvest Research - 26 Aug 2022