Results

Within Expectations – Reported 4Q13 core earnings of RM28.6m and FY13 of RM134.1m, achieving 96.2% of HLIB’s forecast and 91.8% of consensus.

Deviations

None.

Dividends

Declared single tier interim dividend of 3 sen/share. Total net dividend for FY13 was 6 sen/share (1.73% dividend yield).

Highlights

FY13 Revenue remained stable yoy due to strong DMMS (Perodua) sales and improved revenue of Hirotako, which was offset by weak sales in DMSB (Daihatsu and Hino), Federal Auto (VW, Volvo and Mitsubishi) and OMI.

Overall FY13 EBIT margin deteriorated yoy on weaker sales mix, higher marketing and distributional cost, as well as startup cost on network (Federal Auto) and capacity expansion (OMI). OMI is expected to ramp up production of its alloy wheel plant by 2Q14, which will be revenue generative, offsetting the initial high startup cost.

The JV with Hino to set up manufacturing facilities (capacity of 10k units p.a.), is expected to complete by early 2014 and profitable within its first year of operation.

Perodua’s new manufacturing plant is expected to commence operation by 2H13, which will double up its production capacity.

The aggressive plans of both the national cars for export market and new manufacturing facility set-up by foreign OEMs in Malaysia are likely to benefit MBM’s automotive parts manufacturing segment (Hirotako and OMI) in the longer term.

Risks

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

Forecasts

Unchanged for FY14-15. We have introduced FY16 forecasted earnings at RM191m.

Rating

BUY

Positives –

• Relatively cheap valuations.
• Expansion into vehicle assembly to complete its strategy of becoming an integrated automotive player.
• Strong sales of Perodua.
• Increasing domestic car production and localization.
• Weakened Yen against RM.

Negatives –

• Does not have strong foreign automotive partners as compared to UMW (with Toyota) and TCM (with Nissan).
• Margin squeeze on components and parts segment.

Valuation

Maintained BUY on MBM with unchanged TP of RM4.52, based on SOP.  

Source: Hong Leong Investment Bank Research - 24 Feb 2014