Results

• Within Expectations – Reported PATAMI of RM18.8m for 2Q16 and RM38.6m for 1H16, achieving 41.4% of HLIB’s forecast for FY16 and 43.2% of consensus. Expect stronger earnings in 2H16, driven by new launch of Perodua Bezza as well as production ramp up of OMI alloy manufacturing.

Deviations

• None.

Dividends

• Declared net interim dividend of 3 sen.

Highlights

• YoY: Revenue increased by 14.1% on higher sales volume by automotive dealerships, auto parts and components manufacturing, but earnings declined by 35.6% on lower margins (weakened RM and higher sales and marketing costs) as well as lower associates/JVs contribution (-29.2% yoy). Notably Perodua (associate) experienced lower sales volume as consumers were holding back purchases prior to new launch of Perodua Bezza.

• QoQ: Revenue increased by 14.2% on stronger group sales volume. However, core earnings dropped by 5.1% on lower margins and associate contributions.

• 1H16 YTD: Excluding property revenue for Menara MBM of RM139.8m in 1H15, MBM group revenue declined by 3.1% mainly due to lower Perodua (dealerships) sales volume. Core PATAMI declined by 28.9%, on higher sales and marketing costs and input costs (weakened RM) and lower associates/JVs contributions.

• Outlook: With new models from Perodua (Bezza) and Proton (Persona, Saga and Ertiqa) in 2H16, we 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 analyst briefing.

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

• Maintained BUY on MBM with unchanged TP of RM2.75 based on FD SOP.

Source: Hong Leong Investment Bank Research - 26 Aug 2016