Investment Highlights

• We maintain BUY on MBM Resources Holdings (MBMR) with a higher fair value (FV) of RM5.22/share (from RM5.10/share previously) on higher earnings expectations with an unchanged FY23F target PE of 8x – 1.0 standard deviation above its 5-year average of 6.2x on strong order book prospects. No changes to our neutral 3-star ESG rating.

• FY22 earnings of RM269mil beat our expectation, coming in 15% above our and consensus estimates. We raised our FY23F earnings by 8% and FY23F by 3% after factoring in higher sales volume assumptions and associate contributions. We also introduce FY25F net profit premised on a revenue growth of 4%.

• FY22 earnings increased by 36% YoY on the back of a 51% surge in revenue. This is mainly driven by higher contributions from motor trading (+51% YoY) and auto parts manufacturing (+53% YoY) divisions following the increased in demand for passenger vehicles due to the sales tax exemption, which expired in June last year. On top of that, higher share of results from joint ventures (JV) (+44% YoY) and associates (+31% YoY) also helped to boost the group’s earnings.

• QoQ, 4QFY22 earnings dropped by 5% to RM57mil as auto parts manufacturing division posted lower pretax profit (PBT) (-57%) on lower revenue (-8%), impacted by scheduled shutdown by carmakers which led to lower production volume. The lower PBT was also partly attributed to higher operating costs due to higher raw material prices, increase in minimum wage and payout of employees’ annual compensation. Likewise, contribution from its JV reduced by 17% QoQ while share of results from associate was up by 4% QoQ.

• YoY, 4QFY22 revenue climbed 16%, bolstered by robust performance of both motor trading (+18%) and auto parts manufacturing segments (+10%). However, 4QFY22 earnings plummeted by 48% YoY on higher operating expenses and absence of significant tax savings from an associate in 4QFY22 vs. 4QFY21. Hence, share of associates’ results declined by 53% YoY to RM48mil.

• The group declared a total dividend of 37 sen per share (two special dividends totaling 25 sen per share) for FY22, exceeding our forecast of 30 sen per share, translating to an impressive yield close to 10%. We estimate a FY23F dividend of 30 sen per share, translating to a still-compelling yield of 8%.

• We continue to like the stock on its large order backlog and continuous launches. Banking on the robust reception of its allnew Perodua Axia (>22,000 bookings since launching on 31 January 2023), we are forecasting Perodua sales volume to hit 300,000 units level (from 270,000 units) in FY23F.

• At only 5.5x FY23F PE, the stock is trading below its historical 5-year peak PE of over 9x, while offering a strong dividend yield of 8%.

Source: AmInvest Research - 21 Feb 2023