- We re-affirm our BUY on MBM and our fair value of RM3.70/share is under review with an upward bias pending its post-results briefing this morning.

- MBM’s 4Q14 results outperformed our expectation. The group reported net profit of RM34mil for its 4Q14, which brought FY14 earnings to RM114mil, accounting for 106% of our and 97% of consensus estimates.

- Overall, 4Q14 marks the inflection point in MBM’s earnings cycle after five quarters of disappointment. Net profit was up 31% QoQ driven by a jump in associate contribution and narrowing parts manufacturing losses.

- Launch of the Axia drove a massive 40% YoY (+31% QoQ) growth in associate earnings, despite a fall in Hino contribution (which in turn contributed to <15% of total associate earnings). The Axia’s outstanding bookings remained strong at 39K units (excludes 29K units that have been delivered since launch) with an estimated 4-5 months waiting list. On top of this, the weaker JPY had to a certain extent boosted Perodua’s earnings in the quarter.

- Another key catalyst for Perodua is the commencement of exports of the Axia in 2H15. Overall exports are targeted to contribute to at least 10% of Perodua’s total sales volume.

- Losses for MBM’s auto parts subsidiary (represented mainly by OMI now that Autoliv-Hirotako has been deconsolidated as JCE in 4Q14) had halved QoQ as production rates for alloy wheels had risen for the supply to “a major car model”. OMI alloy wheel had been a key drag to operating profit for most of FY14, where full-year losses doubled to RM20mil from RM10mil in FY13.

- Management is guiding for a break-even in FY15F and the narrowing losses in 4Q14 underpins this trend. More importantly, possibilities of additional variants in the Axia open up opportunity for OMI alloy wheel to slot into the supply chain which it had missed earlier in FY14 given the delay in audit run completion.

- At the current market cap, MBM’s stake in Perodua is valued at just 9x FY15F earnings despite an expected 20% earnings growth this year (on conservative estimates). This compares favorably against the average sector PE of 12x. Dividend yield of 3.8%-4.5% is decent and provides cushion to any downside risk.

Source: AmeSecurities