Investment Highlights

• We retain a HOLD on MBM Resources (MBM) but with a slightly higher FV of RM2.30 (from RM2.20 previously) as we rollover our valuation base to FY18F. The FV is pegged to an unchanged PE of 9.5x – 3 notches below its three-year average historical forward PE of 12.9x.

• 1QFY17 core net profit of RM19mil came within expectations, meeting 23% of our full-year projection and consensus. We leave our forecasts unchanged.

• Revenue improved 12% YoY on a better performance in both of its segments.

• Motor trading saw revenue up 10% on exceptional sales for the Volvo XC90 and stable sales for its cheaper cars. The CKD version of the Volvo XC90 entered the market in the second half of last year, at RM50K or 11% cheaper than its CBU predecessor.

• Its auto parts manufacturing segment saw revenue rising27% on higher production and sales of tires and wheels, in tandem with the higher production TIV (+7% YoY) and stronger volume from the national carmakers.

• PBT improved 3% YoY. The share of associates still accounted for the dominant share of PBT (115%), as pre-tax losses at its auto parts manufacturing segment continued at an average of RM7mil per quarter.

• Its alloy wheel plant is still operating below the optimal level but the company said certain measures currently being taken to resolve this have not had an impact yet.

• We observe that for the motor trading segment, revenue and margins have largely been stable (with the exception of 4Q, when sales spike but margins go into the negative territory).

• The auto parts manufacturing segment improves following the addition of a new model by Proton or Perodua, but there has been trouble sustaining the volume from one quarter to the next. This is while depreciation for the segment stays consistent at RM3mil, resulting in steady losses

• We reiterate that the catalyst would be a significant boost in volume for the alloy wheel business, and concrete efforts to sustain it.

Source: AmInvest Research - 25 May 2017