• We are cautious on MBMR outlook no thanks to prevailing  inflationary environment which may drive buyers to take a step  back on big-ticket purchases. The impending announcement on  Subsidy Rationalisation Initiative (SRI) and its subsequent  implementation could be a dampener especially on the M40  group.

• Though cautious but we are optimistic that demand for Perodua  models will remain solid given competitive pricing, attractive  offering and proven quality – combination of factors that will  underpin sales. Perodua is also expected to do well in the type  C vehicles following its successful roll-out of the new Perodua  Axia.

• Maintain a BUY with unchanged TP of RM4.20. Our valuation is  pegged at 7.1x PER to FY23F EPS of 58.6 sen

Earnings Outlook to Remain Cautious

TIV touched a record high of 720K units in 2022, outpacing the  previous high of 666K units in 2015. This is also in tandem with  MBMR vehicle sales, which increased by 50% YoY to 26k units in  FY22. While TIV numbers are solid, demand may have already  peaked and sales may begin to dwindle given the ending of zero SST  initiative in 2022. This will be added by gloomy global economic  outlook in 2023 no thanks to inflationary pressures, a rise in  material prices, unfavorable currency movement, and higher  interest rate environment. 2023 vehicle sales are expected to  normalise to pre-pandemic levels like in 2019 (Chart 2), however, as  economic uncertainty may dampen demand even with improved  supply and the launch of new models.

Management anticipates FY23 growth to be modest, which may be  bolstered by a rush to deliver backlogs and the introduction of new  models and electric cars. Furthermore, MBMR is working to  improve process efficiency and productivity in order to offset  growing operational costs. This will be spurred by solid demand for  Perodua models as the brand continues to be a valuable  proposition, accounting 87% of vehicles sold throughout 2017- 2022.

We maintain our forecast at this juncture as we anticipate demand  to normalise to pre-pandemic particularly with higher interest rate  environment. Upside risks to earnings may however come from  higher-than-expected vehicle demand on the back of recovering consumer sentiment, new model and facelift launches, sturdy  demand for aftersales services, and cost containment measures.

New Model Launched

Perodua recently launched its brand-new Axia model (Figure 1) on February 14th, with prices  ranging from RM38k to RM49k, setting a new standard in safety, fuel efficiency, design, and  features. Management stated that demand for the brand-new Axia is positive, with current order  of around 27k units (17k units from current booking, while 10k from SST tax exemption booking).  New model certainly will push vehicle sales though this could be dampened by the prevailing  inflationary environment – a bane on big-ticket purchases. On the flip side, higher-than-expected  demand can be anticipated if the government is willing to reinstate the sales tax exemption,  coupled with the assumption of inflation deflating (in 2H) and the economy returning to a steady  growth rate. We project solid sales numbers for Perodua’s new Axia given the company’s entrenched and solid position in the type C group.

Aftersales Throughput is expected to trend higher

4Q22 aftersales throughput increased by 5% YoY and 2% QoQ, pushing the total FY22 numbers to  234k. Demand for maintenance from the authorized MBMR workshops was also sizable, which led to an increase in vehicle sales through cross-selling of products, components, and accessories.  Aftersales throughput is intended to contribute to greater profit margin by retaining customer  loyalty through regular maintenance and repairs, convenient service availability, quality parts and  accessories sales, and warranty-related services. This is in tandem with Motor Trading Division’s  revenue that surged by 18% YoY and 7% QoQ, respectively.

Dividend Payout

MBMR declared a 2nd interim and special dividend of 6 sen and 15 sen respectively pushing total  FY22 DPS to 37 sen, payable on 7th March 2023. This translates into a yield of 9.5% at current  market price.

Reiterate BUY with unchanged TP of RM4.20

Maintain a BUY call with unchanged TP of RM4.20. Our valuation is pegged at 7.1x PER to FY23F  EPS of 58.6 sen. Our FV is justified given MBMR’s steady outlook including its leading position in  Malaysia’s automotive industry, strong brand name and continuous effort to roll out new and  replacement vehicles which generally garner strong sales and after sales services.

Source: BIMB Securities Research - 22 Feb 2023