Investment Highlights

• We reiterate our BUY on MBM Resources Holdings (MBMR) with an unchanged 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.

• We made no changes in our assumptions following an analyst briefing yesterday. Below are the key takeaways:
  ➢ Based on Malaysian Automotive Association (MAA) data, Perodua’s TIV rose 28.3% YoY to 88k units in 3Q23. In view of the ramp up in production, we expect a favorable outlook for 4Q23, supported by higher operational efficiency.
  ➢ Year-to-date (YTD) market share of Perodua remains strong at 46% (+2.5% YoY), mainly taken from Proton’s market share. The strong performance is attributable to softening demand for non-national mix and improvement in the supply chain, which supported production growth.
  ➢ Segmental-wise, the group’s motor trading division is anticipated to outperform, driven by robust Perodua sales volume, whereby MBMR sold over 7.1k units in 3Q23 (+13%YoY). Currently, the group has a significant backlog of orders of 140k and an outstanding order book that can last for 5-6 months. Meanwhile, after-sales throughput also grew 7.9% YoY, in tandem with higher vehicle sales.
  ➢ On the manufacturing front, both of its subsidiaries - Oriental Metal Industries (OMI) and Hirotako Acoustics (HASB) recorded higher sales volume. Given that demand for cars was robust during the quarter, OMI sold more units of steel wheels (+34% YoY) and tyre assembly (+12% YoY). Meanwhile, HASB’s sales of noise, vibration, and harshness (NVH) products grew by 17%YoY.

• Moving forward, the national mix will continue to dominate the market mainly underpinned by robust domestic demand. This is further supported by a stronger economic growth outlook next year with continued improvement in employment and wages. Perodua’s substantive order book to date of 142k and anticipated robust production volume from key OEMs are expected to support vehicles and manufacturing volume for the rest of the year.

• At only 6x FY23F PE, the stock is trading below its historical 5-year peak PE of over 9x, while offering compelling dividend yields of 7%

Source: AmInvest Research - 28 Nov 2023