MBM Resources (MBM) 1H23 PATAMI of RM132mn (-32.7% yoy) came in within our and consensus expectations accounting 50.8% and 51.6% of full year forecast respectively. 2Q23 PATAMI declined by 35% QoQ to RM52mn no thanks to lower income from associate company, Perodua. Nonetheless, the company declared a higher dividend amounted to 26sen DPS. We reiterate a BUY call on MBM with a TP of RM4.80 pegged at 7.1x PER to FY23F EPS of 66.7sen.

• Within expectations. 1H23 PATAMI of RM132mn (-32.7% yoy) was within our and consensus expectations accounting 50.8% and 51.6% of full year forecast respectively.

• Dividend. The company declared a first interim DPS of 6sen and a special dividend of 20sen bringing total DPS of 26sen. This was markedly higher than 1H22 DPS of 16sen and implies payout ratio of 77.1% (1H22: 41.3%).

• QoQ. MBM’s 2Q23 revenue dropped by 2.9% to RM540mn hampered by lower sales and production volume after the push for high volume in 1Q2023 to fulfil the long outstanding bookings by 31st March 2023. PATAMI experienced a 35% decline, amounting to RM52mn, primarily due to reduced contributions from associates and joint ventures (-33.8%). Additionally, the Auto Parts Manufacturing Division faced lower sales volume due to shorter working days caused by public holidays in April and June. During these holidays, Original Equipment Manufacturers (OEMs) utilized the opportunity to temporarily close their plants for scheduled maintenance.

• YTD. Revenue increased by 5.8% YoY to RM1.1bn, thanks to higher revenue contribution from its divisions namely, i) Motor Trading (+5.9% YoY), and ii) Auto Parts Manufacturing (+4.9% YoY). However, PATAMI declined by 12.8% to RM132mn hurt by higher net opex (+10% YoY) and minority interest (+9.1% YoY).

• Outlook. Perodua cars are expected to maintain strong demand, supported by a steady increase in year-to-date units sold, which have grown by 19% compared to the previous year (YTD 2023: 173.1k). This growth is attributed to increased production and an improved supply chain, enabling the fulfillment of outstanding bookings. Perodua has set a target of selling 314,000 units in 2023. Furthermore, other brands, including passenger and commercial vehicles, are also expected to gain traction, benefiting from a stable replacement market and the introduction of new models and variants, including electric vehicles (EVs). Demand for auto parts products is also projected to remain stable.

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

Source: BIMB Securities Research - 24 Aug 2023