Results

• Below Expectations – Reported PATAMI of RM21.3m for 3Q16 and RM59.9m for 9M16, achieving 64.4% of HLIB’s estimates for FY16E and 66.8% of consensus. Despite stronger earnings expectation in 4Q16 on lower losses from OMI Alloy wheel and full quarter contribution from Bezza, we deem the result to be below our expectations.

Deviations

• Slower than expected sales volume and margins (due to RM depreciation).

Dividends

• None.

Highlights

• YoY : Revenue and earnings improved by 5.0% and 147.0% on higher sales volume by sales volume and contribution from associates – Perodua and Hino.

• QoQ : Similarly, revenue and earnings improved by 1.1% and 13.2% on improved sales mix of automotive dealerships and higher contributions from associates.

• YTD : Excluding property revenue for Menara MBM of RM139.8m in 9M15, MBM group revenue was flat yoy on higher contribution from OMI being offset by lower automotive sales. However, core PATAMI declined by 4.8%, on higher input costs (weakened RM) and lower contribution from JV Autoliv Hirotako (low volumes and weakened RM).

• Outlook : Overall automotive outlook continues to be dragged by weak consumer sentiments and weakened RM (higher input costs). However, MBM’s earnings is expected to be supported by sustainable contribution from Perodua (on new launches) and as well as lower losses from OMI Alloy wheel.

Risks

• Prolonged tightening of banks’ HP rules.

• Slowdown in the Malaysian economy affecting car sales.

• Global automotive supply chain disruption.

• RM depreciation.

Forecasts

• Cut FY16-18 earnings by 12.9%, 11.7% and 14.2% respectively after imputing lower margins due to lower group sales volume and higher cost structures on weakened RM.

Rating

BUY ↔

• MBM is expected to enjoy earnings growth from 2017 onwards, mainly on sustainable sales of Perodua in Malaysia (as well as opportunity for Bezza for export market). Perodua has invested into major manufacturing facilities for engine (with Daihatsu) and transmission (with Akashi Kikai and Daihatsu) to improve its cost structures and support its long term growth. Furthermore, OMI alloy wheel plant is expected to cash breakeven from 4Q16 onwards on improved utilization rate.

Valuation

• Maintain BUY on MBM with lower TP of RM2.80 (previously RM3.08) based on SOP, after earnings cut.

Source: Hong Leong Investment Bank Research - 24 Nov 2016