Results

• Within Expectations - Reported 3Q17 core earnings at RM20.8m and cumulative 9M17 at RM56.1m, achieving 75.3% of HLIB estimates and 68.5% of consensus. We do not discount the possibility of FY17 earnings to come above our expectation given the strong demand for recently launched new MyVi model, contribution to strong 4Q17 earnings.

Deviations

• None.

Dividends

• None.

Highlights

• YoY : 3Q17 top line grew by 8.1% to RM466.8m on stronger sales volume and improved sales mix from motor trading and higher OMI sales. Excluding the impairment loss on goodwill (RM10.7m) and provisions for tools and inventories (RM2.5m), core EBIT improved mainly due to higher revenue and improved cost structure. However, core PATAMI dropped by 2.4% on lower contribution from associate Perodua (high base in 3Q16 during the launch of Bezza).

• QoQ : Revenue improved mainly due to positive contribution from all the subsidiaries. Correspondingly, core PATAMI widened by 27.1% on stronger group EBIT and higher contribution from JV/Associates on higher sales volume for Hirotako and Hino.

• YTD : Core PATAMI dropped by 6.3% mainly on lower contribution from JV/Associates on deteriorated sales mix and higher marketing and distributional costs for motor segment.

• Outlook : We expect earnings in 4Q17 to be driven by seasonally higher sales in 4Q and further boosted by the recently launched Perodua MyVi, which had fetched strong bookings of 8,000 orders up till second day after launching. In addition, the new model will also increase the utilization at OMI alloy wheel plant, subsequently minimize its losses.

Risks

• Prolonged tightening of banks’ HP rules.

• Slowdown in the Malaysian economy affecting car sales.

• RM depreciation.

• Successful turnaround of OMI.

Forecasts

• Unchanged.

Rating

BUY ↔

• MBM is expected to leverage on sustainable sales of Perodua in Malaysia (as well as opportunity 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 has started to show positive signs of turnaround in 2Q17.

Valuation

• Maintain BUY on MBM with unchanged TP of RM2.54 based on SOP.

Source: Hong Leong Investment Bank Research - 23 Nov 2017