MBMR reported 3QFY19 core PATAMI of RM53.7m (+7.5% QoQ; +34.4% YoY), translated into 9MFY19 core PATAMI of RM145.7m (+34.0% YoY), above our expectation and consensus. The higher earnings were mainly due to higher group sales volume, improved sales mix and higher contribution from associate Perodua and JV Hirotako. MBMR is expected to continue leverage on the sustainable sales of Perodua. We raised FY19-21 earnings by 9.8%, 6.7% and 1.9% respectively. Maintain BUY on MBMR with higher TP of RM5.50 (from RM4.80) based on 10% discount to SOP of RM6.13, with attractive dividend yield of 4.9%-7.0%.

Above expectations. Reported 3QFY19 core profit of RM53.7m (+7.5% QoQ, +34.4% YoY), boosting 9MFY19 core profit to RM145.7m (+34% YoY), accounted for 80.0% of HLIB’s FY19 forecast and 77.9% of consensus, due to better than expected contribution from its associate Perodua and higher dealership profits. OMIA has been categorised as a discontinued business unit, which has dragged MBM’s bottomline with losses of RM1.8m in 3QFY19 and RM9.6m in 9MFY19. MBM has also recorded a gain of RM1.3m (EI) for the disposal of an investment property during the quarter.

Dividend. None. Usually declare in 2Q and 4Q of the year.

QoQ: Core PATAMI improved by 7.5% to RM53.7m, mainly driven by higher Perodua contributions (on improved sales mix and margin) as well as lower losses from discontinued OMIA (ceased operation effective end 2QFY19).

YoY & YTD: Core PATAMI improved by +34.4% YoY and +34.0% YTD driven by: 1) higher dealership sales volume (DMSB for for Daihatsu and Hino, and DMMS for Perodua) and improved sales mix (Federal Auto after discontinuing loss making Mitsubishi distributorship); 2) higher contribution from associates (mainly Perodua) and JV Hirotako; and 3) lower losses from OMIA.

Outlook: MBMR is expected to continue leverage on the sustainable sales of Perodua, while its automotive components manufacturing may leverage on the sales growth of Perodua and the commencement of Proton CKD program. We expect 4QFY19 earnings to be relatively flat QoQ with sustained Perodua contribution.

Forecast. We increase our earnings forecast for FY19, FY20 and FY21 by 9.8%, 6.7% and 1.9% following higher assumptions of Perodua contribution.

Maintain BUY, TP: RM5.50. Maintain BUY on MBMR with higher TP: RM5.50 (from RM4.80) based on lower discount of 10% (from 20%) to higher SOP: RM6.13 valuation (from RM6.00). MBMR is currently in a net cash position of RM105.4m (27sen/share) with continued earnings and cash flow growth, by leveraging onto the sustaining Perodua sales. We project dividends of 18 sen (FY19), 24 sen (FY20) and 26 sen (FY21), translating to attractive yields of 4.9%-7.0%.

Source: Hong Leong Investment Bank Research - 22 Nov 2019