Investment Highlights

• Maintain HOLD on MBM Resources (MBM) with a higher fai value of RM4.63/share (from RM3.99/share), which is derived by pegging to FY24 PE of 8x – 1SD above its 3-year mean o 6x. Our neutral 3-star rating remains unchanged.

• Post-analyst briefing, we have raised our FY24F earnings by 16% to RM226m on higher FY24F Perodua sales volume o 300k units (previously 285k unit). While FY25F sales volume is largely unaffected, we raise earnings by 0.5% due to highe interest on cash balance.

• We also introduce our FY26 forecast with an earnings growth of 6.2% premised on a 1%-point improvement in pretax margin to 14%.

• Key inputs from management briefing are as follows:
  
  ➢ 2023 was an exceptional year due to: (i) the rush to buy before SST exemption expiry, and (ii) the supply snag o Perodua products in middle of the year led to a rush to purchase at the end of the year
  
  ➢ The Daihatsu scandal is a Japan-specific issue and wil not impact product lineups for Malaysia. However, there are concerns that future model launches might be affected as the Japanese principal reallocates resources to solve their domestic issues first
  
  ➢ Production rate of Perodua cars in January are similar to the numbers in Dec-2023 and this will help to clear ou existing forward order backlogs average of 4 months Demand for Perodua models ae very strong at the moment.
  
  ➢ The Perodua facility will undergo maintenance shutdowns during the Raya week (mid-April) and this wil impact production volumes.
  
  ➢ There will be a final dividend, but management is tight lipped on when and by how much. They allude that MBM will stick to its normal dividend policy
  
  ➢ 2024 outlook is tricky to forecast. Management is concerned about the many new taxes to be introduced along with subsidy rationalisation.

• The stock currently trades at a fair 7.9x FY24 PE multiple which is 1SD above its 3-year historical average of 6x. The strong dividend yield of 7.3% is based on a 50% payou assumption. 

Source: AmInvest Research - 1 Mar 2024