Results

• Above expectation - MBMR’s reported core PATAMI of RM40.5m for 4Q17 and RM96.7m for FY17 (after excluding impairment of goodwill, impairment on JV, impairment of PPE and allowance for slow moving stock), was above our expectation and consensus estimates, at 131% and 123% of the respective full-year forecasts.

Deviations

• Better than expected sales volume and margins.

Dividends

• The board declared a second interim dividend of 1.5 sen/share, bringing the YTD FY17 total dividend to 3.0 sen/share, which was in line with our expectation.

Highlights

• YoY : 4Q17 top line was higher by 1.5% YoY mainly due to higher sales volume from automotive component segment. After excluding the attributable impairments and allowance of RM231.2m, core PATAMI declined to RM40.5m (-11.6% YoY) due to lower contribution from JV/associates at RM41m (-24.6% YoY).

• QoQ : Revenue decreased by 4.9% to RM443.8m mainly caused by lower sales volume due to shortage of the new Perodua Myvi despite better performance at MBM’s auto parts. However, core PATAMI increased by 94.9% due to higher contribution by JV and associate amounted to RM41m (+55.5% QoQ).

• YTD : Despite higher revenue recorded at RM1.7bn (+3.7% YoY), core PATAMI declined by 8.6% to RM96.7m mainly due to lower contribution from JV/Associates. JV/Associates contribution in FY17 was lower at RM120.4m (vs RM142.9m in FY16).

• Outlook : We believe the newly launched Perodua Myvi (Nov 2017) as well as the expected new facelift Alza and new SUV will help to sustain MBM’s earning in the coming quarters. On auto parts segment, we do not expect the division to turnaround in the short-term. Management has taken various cost cutting measures and to improve its production efficiency to narrow the division losses.

Risks

• Prolonged tightening of banks’ HP rules.

• Slowdown in the Malaysian economy affecting car sales.

• RM depreciation.

• Successful turnaround of OMI.

Forecasts

• Unchanged, pending analyst briefing today.

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 RM2.68 based on SOP.

Source: Hong Leong Investment Bank Research - 23 Feb 2018