MBM Resources (MBM) 1Q23 PATAMI of RM80mn (QoQ: 40%, YoY: - 33.8%) came in above our and consensus expectations accounting 35% and 32.4% of full year forecast respectively. PATAMI surged by 40% QoQ to RM80mn thanks to higher contribution from its share of associates and joint ventures (+43.1%) as well as higher sales volume from Auto Parts Manufacturing Division (steel wheel/tyre assembly: +23.4%, NVH: +10%). This pushed net margin higher or by 5.6 ppts QoQ. We reiterate a BUY call on MBM with a new TP of RM4.80 (previously RM4.20) pegged at 7.1x PER to FY23F EPS of 66.7sen.

• Above expectations. 1Q23 PATAMI of RM80mn (QoQ: 40%, YoY: -33.8%) was above our and consensus expectations accounting 35% and 32.4% of full year forecast respectively.

• Dividend. No dividend was declared in 1QFY23, consistent with the practice of previous years.

• QoQ. MBM’s 1Q23 revenue dropped by 14.7% to RM556mn hampered by a pullback in demand, partially influenced by shorter working month in February 2023. PATAMI surged however or by 40% to RM80mn thanks to higher contribution from its share of associates and joint ventures (+43.1%) as well as higher sales volume from Auto Parts Manufacturing Division (steel wheel/tyre assembly: +23.4%, NVH: +10%). This pushed net margin to expand by 5.6 ppts QoQ.

• YoY/ YTD. Revenue increased by 16.2% YoY, thanks to higher revenue contribution from its divisions namely, i) Motor Trading (+16.7% YoY), and ii) Auto Parts Manufacturing (+13.1% YoY). This was a contrast with PATAMI which declined by 33.8% hurt by higher net opex (+24.1% YoY) and minority interest (+33.6% YoY).

• Outlook. Demand for Perodua cars is expected to remain resilient given the YTD units sold that increased steadily by 12% YoY (YTD 2023: 97.4k) on the back of the fulfilment of SST tax exemption initiative that ended on March 2023. Other brands comprising passenger and commercial vehicles are also expected to gain in traction to be powered by steady replacement market and aided by the introduction of new models/variants including EV. We also project stable demand for its auto parts products. Downside risks remain however given higher interest rate environment and prevailing inflationary condition.

• Forecast. We revised our FY23 earnings forecast by 21% consistent with our new assumption amid stable demand for its Motor Trading and Auto Parts Manufacturing division. Our earnings forecast for FY24 and FY25 remain unchanged.

• Our call. We reiterate a BUY call on MBM with a new TP of RM4.80 (previously RM4.20) pegged at 7.1x PER to FY23F EPS of 66.7sen.

Source: BIMB Securities Research - 26 May 2023