We maintain BUY call on MBM Resources (MBMR) with an unchanged fair value (FV) ofRM5.22/share. Our FV implies FY23F target PE of 8x - 1.0 standard deviation above its 5- year average of 6x. We make no changes to the neutral ESG rating of 3 stars.
We made no changes to our forecasts as 9MFY23 core earnings of RM207mil (excluding RM29mil gain mostly from the disposal of a vacant land in Bandar Sri Sendayan, Negeri Sembilan) was within our expectation but ahead of consensus, accounting for 76% of our FY23F earnings and 81% of street’s.
MBMR’s 9MFY23 core earnings rose 24% YoY mainly due to strong sales from 20%-owned associate Perodua, 1%-point improvement in effective tax rate and 3.6% YoY increase in group revenue, bolstered by stronger contributions from motor trading (+4% YoY) and other segments (+14% YoY). Nonetheless, the performance was partly dragged by softer sales volume for Volkswagen and Volvo with the expiry of sales tax exemptions.
QoQ, MBMR’s 3QFY23 core earnings increased significantly by 45% to RM76mil, excluding the gain from the vacant land sale. The impressive sequential growth was largely contributed by the strong performance of associates (+54%) and joint-ventures (+15%), mainly underpinned by robust market demand.
This was further supported by 3QFY23 revenue increasing by 15% QoQ as higher production and overall sales volume partly benefited from longer working days during the quarter under review. Auto parts manufacturing revenue increased 20% QoQ, facilitated by improvement in supplychain ecosystem with supplies of raw materials and parts now catching up with demand.
Also, the motor trading division contributed to the overall increase in revenue by increasing 15% QoQ, attributable to higher vehicle supplies, particularly for Perodua models. Recently, Perodua has revised 2023F sales target from 314k to 325k on the back of stronger demand and better parts supply.
We remain positive on MBMR given its high profit visibility which is reinforced by a significant order backlog of over 170k units as of October 2023 for Perodua vehicles. This backlog accounts for 52% of the carmaker's revised FY23F sales forecast and 53% of our assumption of 320k units.
All in, we are optimistic for MBMR's near-to-medium term outlook given: 1) Perodua's strong sales; and 2) improving production levels.
In view of the FY23F P/E of only 5x vs. its historical 5-year peak of over 9x, valuations are at a bargain. In addition to the interim distribution of 6 sen per share, MBMR also announced a special dividend of 7 sen per share. We maintain our projection of a 30 sen dividend per share for FY23F, which translates to a highly attractive yield of 9%.
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