Results

• Above Expectation – Reported core PATAMI of RM44.6m for 4Q16 and RM104.5m for FY16, achieving 135.2% of HLIB estimates for FY16E and 123.4% of consensus.

Deviations

• Stronger than expected contribution from Associates- Perodua and Hino in 4Q16. However, we believe the strong earnings to be one-off, given the relatively flat sales volume while cost structures are unlikely to have improved. Hence, the strong contribution is likely to normalize in 2017.

Dividends

• Recommended final dividend of 3sen/share, bringing full year dividend to 6sen/share, within HLIB expectation.

Highlights

• YoY: Despite lower car sales volume, revenue improved by 1.9% on lower discounts, improved sales mix and higher sales from OMI Alloy. Excluding one-off impairments and provisions (RM41m), core earnings improved drastically by 98.3% to RM44.6m on higher contribution from associates.
• QoQ: Similarly, earnings improved significantly by 109.2% on higher contributions from associates.
• FY16: Excluding property revenue for Menara MBM of RM143.9m in FY15, MBM group revenue was flat yoy. However, core PATAMI (excluded RM42.5m impairments and provisions mainly in 4Q16) improved by 14.8%, mainly on higher associates contribution, which were partially offset by weaker earnings of dealerships (FAHB, DMSB and DMMB) and automotive components (Hirotako and OMI).
• Outlook: Overall automotive outlook continues to be weak, dragged by subdued consumer sentiments and weakened RM. Nevertheless, MBM will continue to leverage on sustainable Perodua sales and lower losses from OMI Alloy wheel. OMI will continue its Alloy wheel plant expansion over the next 2 years to improve its cost structures.

Risks

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

Forecasts

• Unchanged, pending further clarification on the earnings contribution from associates.

Rating

BUY ↔

• MBM is expected to leverage on sustainable sales of Perodua in Malaysia (as well as opportunity for export market from Bezza). 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, its OMI alloy wheel plant is expected to cash breakeven from 4Q16 onwards on improved utilization rate.

Valuation

• Maintain BUY on MBM with higher TP of RM2.75 (previously RM2.56), as we roll forward our valuation into 2018.

Source: Hong Leong Investment Bank Research - 23 Feb 2017