MBMR reported 4QFY19 core PATAMI of RM47.3m (-12.1% QoQ; -28.5% YoY), and FY19 of RM192.9m (+10.7% YoY), within our expectation and consensus. The higher FY19 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 leveraging on the sustainable sales of Perodua. Declared a second interim dividend of 7 sen (ex-Date: 11 March) and we expect another round of final/special dividend for FY19, given the group’s high net cash position of 58.2sen/share with no foreseeable major capex plan. Maintain BUY on MBMR with unchanged TP of RM5.50 based on 10% discount to SOP of RM6.13, with attractive dividend yield of 6.1%-6.6% for FY20-21.

Within expectations. Reported core profit of RM47.3m (-12.1% QoQ, -28.5% YoY) for 4QFY19 and RM192.9m (+10.4% YoY) for FY19, accounted for 96.5% of HLIB’s FY19 forecast and 95.0% of consensus. During 4Q19, MBM has also written-off costs of RM9.5m in the Motor Trading segment, written-back of RM1.4m for its discontinued operation of OMIA and reversed RM2.9m tax overprovision in relation to prior years.

Dividend. Declared a second interim dividend of 7 sen (ex-Date: 11 Mar 2020). We expect another round of follow-up final/special dividend for FY19, given the current high net cash position of MBMR at 58.2sen/share.

QoQ & YoY: Core PATAMI declined by 12.1% QoQ and 28.5% YoY mainly on lower margin of Motor Trading segment as well as lower contribution from associate Perodua (deteriorated sales mix) and Hino (lower sales volume).

YTD: Core PATAMI improved by +10.4% YoY 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, following operational cease by mid-2019.

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. However, MBMR may be affected in the short term due to the outbreak of covid-19 and the current domestic political uncertainty.

Forecast. Unchanged.

Maintain BUY, TP: RM5.50. Maintain BUY on MBMR with unchanged TP: RM5.50 based on 10% discount to SOP: RM6.13 valuation. MBMR is currently in an excessive net cash position of RM227.7m (58.2sen/share) with continued earnings and cash flow growth, by leveraging onto the sustaining Perodua sales. We expect another round of final/special dividend for FY19, given the group’s high net cash position with no foreseeable major capex plan. We maintain dividend of 24 sen (FY20) and 26 sen (FY21), translating to attractive yields of 6.1%-6.6%.

Source: Hong Leong Investment Bank Research - 27 Feb 2020