MBM reported core PATAMI of RM32.6m (-19.6% QoQ; +71.6% YoY) for 1Q18, above HLIB expectation, following higher contribution from its associates (Perodua) as well as higher demand from auto parts segment. The board did not declare any dividend. We raise FY18-19 earnings by 23.2% and 16.1% respectively and introduce FY20 figure at RM132.6m. Maintain BUY with higher TP of RM2.84 from RM2.70.

Above expectation – 1Q18 revenue of RM463.5m was translated into a core net profit of RM32.6m, accounting for 34.4% and 32.1% of HLIB and consensus full year forecasts, respectively due to better than expected contribution from its associates Perodua. Perodua has introduced the new Perodua Myvi in Nov 2017 and has garnered 70k bookings with 38k units delivered as of the third week of Apr 2018.

YoY: Revenue improved by 10.9% to RM463.5m (versus RM RM418.1m in 1Q17) mainly driven by higher contribution from sales of the new Perodua Myvi contributing to higher revenue for its dealership (DMSB and DMMS) as well as higher automotive parts segment from stronger demand for alloy wheels from both OEM customer (P2) and exports market. Consequently, from higher earnings from DMSB, DMMS and OMI Alloy as well as higher contribution from associates (Perodua), core PATAMI went up to RM40.2m (+40.9% YoY).

QoQ: Revenue expanded by 4.4% attributed to higher demand for Perodua Myvi resulting in higher subsidiaries revenue (DMMS) and higher contribution from property development segment. However, core PATAMI fell by 19.6% to RM32.6m due to lower associates contribution from Hino and Teck See Plastics and higher profit attributed to minority interest.

Outlook: We believe MBM is able to ride on stronger associate contribution in order to sustain its earnings in the upcoming quarters banking on the all-new Perodua Myvi and the introduction of the new Perodua SUV (D38L) in 2018.

Automotive parts segment. The automotive parts division has recorded improvement from higher sales volume and better cost management from improved production utilization and reduction in material rejection rates. We anticipate the division will record lower losses in FY18 and able to break even in FY19.

Forecast. We increase our earnings forecast for FY18 and FY19 by 23.2% and 17.9% to RM116.8m and RM125.5m on the back of higher Perodua sales unit and better contribution from OMI Alloy. We also introduced FY20 figures at RM132.6m.

Maintain BUY, TP: RM2.84. MBMR 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 FY17. We maintain BUY on MBMR with higher TP of RM2.84 (from RM2.70), based on 20% discount to SOP.

Source: Hong Leong Investment Bank Research - 24 May 2018