Investment Highlights

• We maintain BUY call on MBM Resources (MBMR) with the same fair value (FV) of RM5.22/share, derived from an unchanged FY23F target PE of 8x - 1.0 standard deviation above its 5-year average of 6x. The FV also reflects an unchanged neutral ESG rating of 3-star.

• We made no changes to our core earnings estimates as group’s 1HFY23 core net profit of RM131.9mil was within expectations, accounting for 49% of our FY23F earnings and 52% of consensus.

• 1HFY23 earnings increased by 18% YoY on the back of a 6% rise in revenue. This is mainly driven by higher contribution from motor trading (+6% YoY) and auto parts manufacturing (+5% YoY). The substantial boost in bottomline can be primarily attributed to a 16% surge in its 20%-owned associate's Perodua sales volume, coupled with a consistent 17% improvement in aftersales performance.

• QoQ, MBMR’s 2QFY23 core net profit dropped 35% to RM52mil as revenue declined 3% mainly due to lower sales and production volume after the high volume in 1QFY23 from fulfilling long outstanding bookings by 31 March 2023 to secure sales tax exemption which expired on 30 June 2022.

• In addition, auto parts revenue slipped 12% while PBT plunged 65% QoQ mainly due to shorter working days from public holidays in April and June while OEMs opted to shut down the plants for maintenance.

• YoY, MBMR’s 2QFY23 revenue decreased 3%, primarily attributed to the motor trading division's diminished performance. This division's decline stemmed from subdued demand following the conclusion of the sales tax exemption period for Volvo and Volkswagen. Nonetheless, demand for Perodua vehicles remained resilient, evidenced by a 13% YoY increase in Perodua vehicle sales, supported by supply chain stabilisation.

• We continue to like the stock for its robust earnings visibility, supported by a substantial order backlog of 170k units for Perodua vehicles. This backlog represents 57% of our FY23F sales target of 300k units and 54% of the carmaker's own sales target of 314k units.

• Separately, on top of the 6 sen/share interim dividend, MBMR declared a special dividend of 20 sen/share. We estimate a FY23F dividend of 30 sen per share, translating to a highly compelling yield of 9%.

• Valuations are also at a bargain with FY23F P/E of only 5x vs. its historical 5-year peak of over 9x.

Source: AmInvest Research - 24 Aug 2023