MBMR’s 9M18 core earnings of RM109.0m (+94.1% YoY) came in above our expectation, accounting for 89.9% and 89.0% of our and consensus full year forecast. The upward surprise was mainly due to higher than expected subsidiary and associates automotive sales volume attributed to GST zerorisation and higher demand from auto parts segment. We increased our FY18, FY19 and FY20 earnings forecast by 17.1%, 7.5% and 6.5% respectively after imputing higher Perodua sales volume. We maintain BUY on MBMR with higher TP of RM3.13 (from RM3.04) based on 20% discount to SOP RM3.92.

Above expectation. MBMR reported 3Q18 core earnings of RM40.1m and 9M18 core earnings to RM109.0m, increased by 94.1% YoY. The core earnings accounted for 89.9% of our full year forecast and 89.0% of consensus estimates, above ours and consensus expectations. This was mainly due to higher than expected sales during GST tax holiday period.

Dividend. No Dividend Was Declared.

QoQ. Revenue dropped marginally 4.2%, affected by shortage of Perodua Myvi for DMMS, which was partially upheld by stronger sales from DMSB (Hino/Daihatsu) and FAHB (VW, Volvo and Mitsubishi).Core PATAMI improved to RM40.1m (vs. RM36.3m in 3Q18) was due to combination of: 1) stronger associates contribution (we believe the growth driven by Hino); 2) turnaround of automotive manufacturing segment (mainly OMI) in the quarter; 3) lower net interest expenses; and 4) lower tax.

YoY. Revenue was flattish at +1.2% on higher sales for vehicles from tax holiday in July and August 2018 for DMSB and FAHB, being offset by lower sales of DMMS on supply disruption of Perodua Myvi. JV and associates contribution improved by 56% to RM41.1m thanks to higher contribution from Perodua and Hino during GST tax holiday. Subsequently, core PATAMI improved to RM40.1m (+92.9% YoY).

YTD. 9M18 core net profit widened to RM109.0m (from RM56.1m in 9M17) mainly on the back of: 1) higher revenue contribution (+10.9% YoY) from higher vehicles and auto parts sales; 2) improved production and efficiency of automotive manufacturing (OMI); 3) impressive JV/associates contribution (+57.4% YoY) resulting from higher sales during tax holiday period; and 4) lower net finance cost (-45.8% YoY).

Outlook. We believe MBMR’s earnings outlook to be supported by strong contribution from Perodua, mainly from its best-selling Myvi and upcoming SUV (slated to be launched in Feb 2019) as well as narrower losses from OMI alloy wheels business.

Forecast. We increased FY18, FY19 and FY20 earnings forecast by 17.1%, 7.5% and 6.5% respectively after imputing higher sales volume mainly from Perodua, higher production demand from auto parts and lower losses from OMIA.

Maintain BUY, TP: RM3.13. 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 with breakeven in recent 3Q18 result. We maintain BUY on MBMR with higher TP of RM3.13 (from RM3.04) based on 20% discount to SOP of RM3.92.

Source: Hong Leong Investment Bank Research - 23 Nov 2018