Investment Highlights

• We reiterate our BUY call on MBMR with an unchanged fair value of RM5.10/share, based on FY23F PE of 8x at parity to its pre-pandemic 5-year (2015-2019) mean on robust order bookings, with no changes to the neutral ESG rating of 3 stars.

• Our forecasts are maintained following an analyst briefing last Friday. Key takeaways included:
  • Year-to-date (YTD) market share of Perodua remains strong at 43% (+0.7% YoY) but Proton’s slid to 21% (-4% YoY) due to component supply issues in early 2022. Apart from that, Proton also faced chip hiccups that prompted the reallocations to best selling models. However, the impact of chip shortages was very minimal on Perodua due to its resilient supply chain.
  • Given that YTD total industry volume (TIV) was already at 577,800 units, management believes that the 700,000 level can materialise by the end of 2022 based on robust prospects. While MBMR’s aftersales throughput has jumped by 63% YoY in 3QFY22 due to low base impact during the movement restrictions last year, the group highlighted that the uptrend is normalising and likely to stabilise in the future.
  • In terms of currency risks, management guided that the strength of the USD/MYR was levelling off, benefiting the group especially in its manufacturing segment. The surge in the USD/MYR was partially cushioned by depreciation in the THB//MYR and JPY/MYR as the group sourced the parts from Thailand and Japan. Therefore, the overall impact was minimal – less than 2% to its gross margin in 2022.
  • Model-wise, MBMR is rolling out a new model – Volvo c40 which is an electrical vehicle (EV), possibly in the middle of December 2022. The group is also expecting more stocks from Volvo to close off the year.
  • Cost-wise, its associates have incurred higher raw material prices which squeezed its contribution by 14% QoQ. Nonetheless, the group’s gross margin across its own business units has seen otherwise and is expected to continue improving in 4QFY22 with more model roll-outs in the pipeline. For instance, the new Alza was introduced just 2 months ago.
  • We also gathered that Perodua’s sales have slowly reverted to the pre-pandemic level after the expiry of SST in June 2022, with bookings down slightly in July but subsequently rising in August-October this year to inch closer to 30,000 units (MBMR’s pre-pandemic level per month range-bound at 30,000 units – 35,000 units). Management’s guidance also highlighted November figures would be similar to October level.
• MBMR currently trades at an undemanding FY23F PE of 5.2 x vs its 5- year peaks of over 6.5x coupled with attractive dividend yields of 5%.

Source: AmInvest Research - 29 Nov 2022