Results

Below – Reported 2Q13 core earnings of RM37.0m and 1H13 of RM70.4m, achieving only 39.7% of HLIB’s forecast and 44.8% of consensus. We expect stronger earnings in 2H13 as car sales volume pick up.

Deviations

Lower than expected sales volume and margins from Federal Auto.

Dividends

Declared net dividend of 3 sen/share.

Highlights

2Q13 revenue decreased to RM580m (-5.9% qoq; -5.5% yoy) due to lower sales volume of Volvo and Volkswagen (under Federal Auto), which was partly offset by stronger sales of Perodua (DMMS) and Hino & Daihatsu (DMSB), as well as improved autoparts and components sales (increased total car industry production volume especially national cars).

2Q13 margins improved qoq on the back of improved Hirotako sales (higher margin segment) and lower pressure on competitions. The quarter was still impacted by the high start-up cost of OMI alloy wheel plant and new showrooms.

Associate Perodua and Hino contributed higher earnings at RM37.6m in 2Q13 vs. RM34.8m in 1Q13 and RM27.1m in 2Q12, due to improved sales volume (Perodua: +6.2% qoq and +9.8% yoy; Hino: +4.7% qoq and +1.8% yoy) and weakening of JP¥. Sales volume of Perodua continued to be strong on the successful launch of Perodua S-series.

MBM is expected to continue benefit from car sales recovery in 2H13 and the appreciation of MYR against JP¥ in 2H13, but partly offsets by the strengthening of US$.

Risks

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

Forecasts

We keep our forecast unchanged at this juncture (pending analyst briefing on 23 Aug 2013).

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.
• Small cap and low liquidity.

Valuation

Maintained BUY on MBM with unchanged TP of RM5.00 based on SOP, pending analyst briefing

Source:Hong Leong Investment Bank Research - 23 Aug 2013