MBMR reported 1H18 core PATAMI of RM68.9m (+94.8% YoY), above our expectation. The board declared first interim single tier dividend of 3.0sen/share. The higher earnings were due to higher contribution from its associate Perodua and higher sales volume from Motor Trading segment. We raise FY18, FY19 and FY20 forecast by 3.8%, 9.0% and 10.6% after adjusting for higher associate Perodua contribution. We maintain BUY recommendation with higher TP of RM3.04 based on 20% discount to SOP.

Above expectation. MBMR reported core earnings of RM36.3m in 2Q18 and RM68.9m in 1H18. 1H core earnings accounted for 58.8% and 58.7% of HLIB and consensus full year FY18 forecast respectively, which is above expectations. The better than expected results were due to stronger than expected sales volume as well as higher contribution from its associate, Perodua.

Dividend. Management declared an interim single tier dividend of 3.0 sen per share (vs. 1H17: 1.5 sen).

QoQ. Revenue improved by 6.4% to RM493.3m mainly contributed by higher sales from Motor Trading segment. The higher revenue was boosted by zerorisation of GST which drove sales volume for its dealerships. Combined with the higher JV/associates of automotive component contribution (+8.7% QoQ), core PATAMI increased by 11.3% to RM36.3m.

YoY. Revenue grew 22.1% YoY to RM493.3m (from RM403.9 in 2Q17) namely driven by higher sales volume from the dealerships, namely Federal Auto, DMMS and DMSB. JV & associates contribution also increased to RM43.6m (+78.0% YoY), boosted by higher contribution from Perodua sales and Hirotako from higher customer demand. Subsequently, core earnings improved to RM36.3m (+121.8 YoY).

YTD. As a result from higher revenue (+16.4% YoY), core PATAMI expanded to RM68.9m (from RM35.3m in 1H17), on higher JV & associates contribution (+58.1% YoY), higher EBIT mainly from Motor Trading segment as well as lower group finance cost.

Outlook. MBM continues to rely heavily on its associate stake in Perodua, which will be boosted by the high demand for the new Myvi model (launched since Nov 2017) and upcoming Perodua SUV D38L, in sustaining MBMR’s earnings in the coming quarters. Its auto parts segment has managed to reduce its operating loss by proactively implementing its cost reduction strategy and increase in sales volume. We believe it will potentially turn OMI Alloy into a profitable entity in FY19.

Forecast. We increase our earnings forecast for FY18, FY19 and FY20 by 3.8%, 9.0% and 10.6% respectively, imputing for higher Perodua sales and better contribution from OMI Alloy. We also impute higher DPS of 6.0 sen (from 4.0 sen previously).

Maintain BUY, TP: RM3.04. MBMR is expected to leverage on sustainable sales of Perodua in Malaysia (as well as opportunity for export market). Furthermore, OMI has started to show positive signs of turnaround in 1H18. We maintain BUY on MBMR with higher TP of RM3.04 (from RM2.84) based on 20% discount to SOP.

Source: Hong Leong Investment Bank Research - 29 Aug 2018