Results

• Below Expectations – Reported 1Q15 PATAMI of RM35.1m mainly boosted by sale of property. Excluding property segment, we estimated its existing core business (automotive related) to be circa RM25m for 1Q15 which is 16.7% of HLIB and 17.1% of consensus. Nevertheless, we expect earnings growth in upcoming quarters on sales recovery of Hino, OMI’s production ramp-up and Perodua’s inventory normalization.

Deviations

• Lower contribution from Hino (lower sales), Hirotako and Perodua (taking GST impact on inventory from dealers).

Dividends

• None.

Highlights

• Maiden contribution from 70% owned Menara MBM at RM139.8m revenue and RM33.5m PBT (not inclusive of internal group sales). However, MBM needs to pay tax of 25% on the total RM48m PBT (including internal sales). Note that MBM occupied 25% of the building space.

• Excluding property segment, 1Q15 revenue was RM451.9m (+1.1% yoy; +8.2% qoq), driven by growth in group car vehicle sales. Group EBIT level was relatively stable at breakeven level.

• 1Q15 recorded lower qoq contribution from associate level mainly dragged by lower Hino sales (-63.5% qoq), AHSB contributions (-21.3% qoq) and Perodua undertake corporate exercises to re-assume the Perodua inventory from dealers prior to GST implementation.

• We expect stronger earnings in the coming quarters, given sustained Perodua sales (expected to export Axia by 2H15), recovery of Hino demand (guided by management), production ramp-up of OMI alloy wheel plant (lower losses from higher utilization).

Risks

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

Forecasts

• Unchanged, pending further updates.

Rating

BUY

Positives

• Cheap valuations.
• Strong sales of Perodua.
• Turnaround of OMI Alloy wheel plant.
• Weakening Yen against RM.

Negatives

• Does not have strong foreign automotive partners as compared to UMW (with Toyota) and TCM (with Nissan).
• Small cap and low liquidity.

Valuation

• We remained positive about MBMR prospects for 2015, leveraging on the sustainable growth of Perodua sales. Maintained BUY on MBM with unchanged TP of RM4.28 based on SOP.

Source: Hong Leong Investment Bank Research - 26 May 2015