News

MBM’s wholly owned subsidiary, Federal Auto has entered into MOU with China SAIC Motor to revive MG marque in Malaysia. MG is an iconic British marque, which was acquired by SAIC back in 2007.

The MOU is a step forward to conduct further discussions, due diligence and feasibility studies in reintroducing MG vehicles in Malaysia, which may lead to the establishment of manufacturing facilities for CKD productions.

Financial Impact

• None, pending further information.

Pros/Cons

We are slightly positive on the new development. Federal Auto is likely to fight for the exclusive sole distribution rights for MG in Malaysia, as compare to its current non-exclusive dealership licenses for Volvo, Mitsubishi and VW.

We note that MG offer 2 sedan models (MG6 and MG7) and 2 hatchbacks (MG3 and MG5). Currently MG cars are manufactured in China, and exported to worldwide in CBUs and CKDs. MG is also considering the development of SUV.

We do not anticipate strong sales volume coming from MG, given its limited variants and absence of 3/4s centers in Malaysia as well as low secondhand value (limited used market). Hence, we doubt MBM is willing to invest significant resources in reintroducing MG into Malaysia.

However, we believe MBM will develop strong relationship with SAIC, which may lead to JVs in regional manufacturing hub for Chinese marques. SAIC owns Maxus, MG, Roewe and Yuejin marques. SAIC also has manufacturing JVs for Chevrolet, Skoda, VW, Buick, Baojun, Iveco and Wuling.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy affecting car sales.
• Global automotive supply chain disruption.

Forecasts

• Unchanged.

Rating

BUY

• Positives –
  • Cheap valuations.
  • Expansion into vehicle assembly to complete its strategy of becoming an integrated automotive player.
  • Strong sales of Perodua and VW.
  • Weakening Yen against RM.
• Negatives –
  • Does not have strong foreign automotive partners as compared to UMW (with Toyota) and TCM (with Nissan).
  • Potential high gearing due to continued expansion plan.
  • Margin squeeze on components and parts segment.

Valuation

• Maintained BUY on MBM Resources with unchanged target price of RM4.35 based on SOP.

Source: Hong Leong Investment Bank Research - 15 Apr 2013