Results

• Within Expectations – Reported 1Q16 PATAMI of RM19.8m which is 20.9% of HLIB and 21.1% of consensus. We expect stronger earnings for upcoming quarters on OMI’s production ramp-up and sustained Perodua sales, as well as higher demand from Proton new models.

Deviations

• None.

Dividends

• None.

Highlights

• In line with the weak automotive market trend, 1Q16 revenue dropped by 20.8% yoy (excluding RM139.8m of property revenue in 1Q15) and 14.9% qoq to RM373.9m, dragged by lower sales volume of: 1. FAHB (-27.4% yoy; -13.3% qoq); 2. DMSB (-14.5% yoy; -18.1% yoy); and 3. DMMS (-12.2% yoy; -18.3% yoy), and lower revenue contribution from: 1. HASV (-14.3% yoy; -15.7% qoq); and 2. OMI (-6.2% yoy; -15.7% qoq) on lower demand from Proton.

• EBITDA deteriorated to RM2.6m and EBIT turned to losses of RM3.3m due to lower sales and production volume.

• 1Q16 recorded higher 25% qoq contribution from associate level at RM27.5m on stronger sales of Perodua (+13.8% qoq), partially offset by lower Hino sales (-37.9% qoq)

• JV Autoliv contributions declined 38.9% qoq to RM2.2m due to lower sales demand (likely Proton).

• With the expected new models from Perodua and Proton by 2H16, we can expect MBM to record stronger earnings from DMSB (Perodua dealership), Perodua associates, OMI (wheels and tyres) and Hirotako (on airbags and seatbelts).

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; and
• Turnaround of OMI Alloy wheel plant.

Negatives

• Absence of strong foreign automotive partners as compared to UMW (with Toyota) and TCM (with Nissan);
• RM depreciation;
• Weakened consumer sentiment; and
• Small cap and low liquidity.

Valuation

• We remain positive on MBMR prospects for 2H16, leveraging on the stronger sales of Perodua and Proton. Maintained BUY on MBM with unchanged TP of RM2.75 based on SOP.

Source: Hong Leong Investment Bank Research - 19 May 2016