Results

• Below Expectations – Reported PATAMI of RM29.2m for 2Q15 and RM64.4m for 1H15. Excluding property segment, we estimated its existing core business (automotive related) to be circa RM54.2m for 1H15 which is 36.4% of HLIB and 37.9% of consensus. Nevertheless, we expect stronger 2H15, driven by continued strong Perodua sales.

Deviations

• Lower margins for Hirotako and dealerships.

Dividends

• Declared net dividend of 7 sen (interim dividend 4 sen + special dividend 3 sen), in line with our expectation.

Highlights

• Note that 1Q15, MBM recognized contribution from 70% owned Menara MBM at RM139.8m revenue, RM33.5m PBT (not inclusive of internal group sales) and estimated RM10m PATAMI (excluding 30% MI stakes). Excluding the property segment, 2Q15 earnings increased by +16.8% qoq.

• 2Q15 revenue dropped drastically due to slump in automotive sales (dealerships under Federal Auto, DMSB and DMMS), arising from GST implementation effective 1st April 2015. Nevertheless, management mentioned improvement towards the May and June months.

• Automotive components incurred higher losses in 2Q15, as OMI incurred higher operational costs (related to production ramp up and higher input cost on weakened RM). Breakeven for OMI Alloy wheel manufacturing plant may be further dragged due to slower demand growth.

• Contribution from associate Perodua and Hino improved 19.0% qoq on higher Perodua sales and lower losses from Hino manufacturing. Note that Perodua incurred higher costs in 1Q15, after it re-assumed Perodua inventory from dealers.

• JV Autoliv Hirotako dropped further by 7.8% qoq due to lower volumes, pricing pressures and margin depressions.

Risks

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

Forecasts

• Unchanged, pending analyst briefing.

Rating

BUY

Positives

• Cheap valuations.
• Strong sales of Perodua.
• Turnaround of OMI Alloy wheel plant.

Negatives

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

Valuation

• Maintained BUY on MBM with unchanged TP of RM4.28 based on FD SOP.

Source: Hong Leong Investment Bank Research - 20 Aug 2015