Results

• Within Expectation – Reported core PATAMI of RM19.4m for 1Q17, achieving 23.0% of HLIB estimates for FY17E and 21.6% of consensus.

Deviations

• None.

Dividends

• None.

Highlights

• YoY : Despite lower car sales volume, revenue improved by 11.8% on lower discounts, improved sales mix and higher sales from OMI Alloy. However core earning was relatively flat YoY, as the improved contribution from dealership was offset by higher loss from OMI and weaker contribution from JV/associates.

• QoQ : Earnings dropped significantly due to normalized contribution from associates, which spiked up in 4Q16 alone.

• Outlook : Overall automotive outlook continues to be weak, dragged by subdued consumer sentiments and weakened RM in 2017. Nevertheless, RM has shown sign of improvements in 2Q17.

• MBM will continue to leverage on sustainable Perodua sales and lower loss from OMI Alloy wheel, on the back of plant expansion and higher utilization rate over the next 2 years as well as reduction of reject rate of alloy wheel production (start-up learning curve).

Risks

• Prolonged tightening of banks’ HP rules.

• Slowdown in the Malaysian economy affecting car sales.

• RM depreciation.

• Successful turnaround of OMI.

Forecasts

• Post adjustment to our model, we maintain forecast for FY17, but raise FY18 profit marginally by 2.3% and introduce FY19 profit at RM129m, a growth of 25.9% on turnaround of OMI Alloy wheel and stronger contribution from JV/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 lower TP of RM2.68 (from RM2.75) based on SOP, post adjustment to our earnings mix for 2018. The entry of foreign strategic shareholder Geely at Proton may now post a key risk to MBM. Proton is targeting to reclaim its number one position in Malaysia in term of market share, as part of its objective of a 10-year plan jointly to be developed with Geely.

Source: Hong Leong Investment Bank Research - 25 May 2017