- We maintain our BUY call on MBM Resources (MBM) at a lower fair value of RM4.35/share (from RM4.60/share

previously) following earnings revisions in this report. MBM’s 3Q13 results came in marginally below expectations. The group reported net earnings of RM35mil for its 3Q13, which brought 9M13 earnings to RM105mil. This accounted for 69% of our and 70% of consensus full year estimates.

- The deviation from our forecast came from lower-than expected earnings from the motor trading division, in particular, Federal Auto (FAHB). We have lowered our projections by 6%-7% over FY13F-15F to reflect margin pressure on Federal Auto’s sales.

- Group 3Q13 earnings were down by 6% QoQ, driven mainly by MBM’s core operating subsidiaries (EBIT: -15% QoQ). The group’s VW and Volvo dealerships in particular, led to a 5.5% QoQ volume decline for FAHB given the intense competition in the premium car segment. Motor trading revenue was down by 5.2% QoQ while margins slipped further to 0.5% from 0.7% (2Q13).

- Parts manufacturing division reported a 1% QoQ revenue growth from improved orders from Proton and Perodua. However, margins were still negatively affected by price reduction pressures, on top of start-up cost for the alloy wheel plant (RM8mil total for FY13F). Associate earnings saw a slight decline (-1.2% QoQ) on the back of Perodua’s 1.6% QoQ decline in volume, but buffered by a weaker JPY recognised in the period.

- The new Mitsubishi Attrage, a 1.2 litre B-segment sedan launched on 12 Nov, could be a catalyst for Mitsubishi sales (dealership under FAHB). It is a competitively priced CBU i.e. from RM59K-76K, given the tax incentives obtained from Thailand’s green car initiatives and achieves fuel efficiency of up to 21km/litre.

- Perodua’s Viva is due for replacement and a new model is likely to be introduced in 1H14. Our channel checks suggest indicative target volumes of 6K-7K units/month. Additionally, the new Viva is likely to have deeper localisation given Perodua’s new transmission plant which will commence operations 4Q13.

- Perodua will also see a doubling in capacity by mid-FY14F (to 400K/annum) from a new, highly automated plant (comparable to Daihatsu’s plants in Japan). Coupled with Malaysia’s position as a key overseas market for Daihatsu (accounting for almost half of Daihatsu’s overseas volumes on our estimates), Perodua looks well positioned to become one of Daihatsu’s key export hub, in our opinion.

Source: AmeSecurities