Investment Highlights

• We maintain BUY on MBM Resources Holdings (MBMR) with  the same fair value (FV) of RM5.22/share, based on an  unchanged FY23F target PE of 8x – 1.0 standard deviation  above its 5-year average of 6x. No changes to our neutral 3- star ESG rating.

• 1QFY23 core earnings of RM80mil largely met our expectation  at 29% of our FY23F net profit but appears ahead of consensus at 32%. Historically, 1Q accounted for 16% - 28% from FY18– FY22 earnings. Hence, we maintain our FY23F–FY25F  earnings.

• YoY, 1QFY23 revenue grew 16% on the back of higher sales  from motor trading (+17%) and auto parts manufacturing  (+13%) divisions as carmakers increased production to fulfil  remaining sales tax-exempted bookings by 31 March 2023. 

• Meanwhile, 1QFY23 core earnings surged 49% YoY,  contributed mainly by higher profits from associates (+34%  YoY) and joint ventures (JV) (+2x YoY), which included a share  of lump sum cost recovery of RM2mil from original equipment  manufacturers (OEMs), together with improved results from  motor trading (+13% YoY) as well as auto parts manufacturing  (+55% YoY).

• QoQ, 1QFY23 revenue dropped 15% due to seasonality as the  group generally received lower vehicle supplies in 1Q  especially from Perodua and Volvo, and partly impacted by the  shorter working month in February 2023, which led to a fall in  topline of motor trading (-16%) and auto parts manufacturing (- 7%). 

• Nonetheless, group core earnings rose 40% QoQ owing to higher profits from JV (+74% QoQ) and associates (+40% QoQ),  which more than offset the drop in motor trading segment (- 39% QoQ). 

• Additionally, contribution from auto parts manufacturing has  improved by 3x QoQ, underpinned by higher sales from both  steel wheel/tyre assembly (+23% QoQ) and NVH products  (+10% QoQ).
   

• The Group Did Not Declare Any Dividend During the Quarter  Under Review, as Expected.

• We continue to like the stock on its sizeable order pipeline of  over 200,000 units, translating to earnings visibility of 7-8  months, which will be further augmented by continuous  launches. 

• At only 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 - 26 May 2023