MBMR reported 1QFY20 core PATAMI of RM27.1m (-42.6% QoQ; -34.5% YoY), below our expectation (18.0%) and consensus (15.3%). MBMR’s result is expected to worsen in 2QFY20 before recovering in 2HFY20. MBMR is expected to continue leveraging on Perodua sales recovery post Covid-19. Approved a final dividend of 9 sen (ex-Date: 09 July) for FY19, boosted total dividend payout of 22 sen for the year. Adjusted FY20 and FY21 earnings by -24.8% and -2.1% on lower group vehicle sales volume. Maintain BUY on MBMR with lower TP of RM4.50 (from RM4.80) based on 15% discount to SOP of RM5.33, with attractive dividend yield of 5.6%-7.7% for FY20-22.

Below expectations. Reported core profit of RM27.1m (-42.6% QoQ, -34.5% YoY) for 1QFY20, accounted for 18.0% of HLIB’s FY20 forecast and 15.3% of consensus. We deem the result as below expectations as we anticipate worsening results in upcoming quarter due to extended MCO (Movement Control Order) before recovering in subsequent quarters.

Dividend. Approved a final dividend of 9 sen (ex-Date: 09 Jul 2020) for FY19, boosting full year dividend to 22 sen.

QoQ & YoY: Core PATAMI declined by 42.6% QoQ and 34.5% YoY, affected by Covid-19 resulting lower group sales volume as consumer sentiment deteriorated, coupled with the effective implementation of MCO since mid-March. Group vehicle sales dropped 31.7% QoQ and 23.0% YoY while associate Perodua vehicle sales dropped 19.2% QoQ and 16.9% YoY.

Outlook: Management expects the operating environment to remain uncertain and challenging for the remaining of FY20. We anticipate automotive sales to further deteriorate in upcoming quarter and only to recover gradually in 2HFY20. The group has implemented cost tightening measures and new marketing platforms in view of the challenging consumer behavior.

Forecast. Cut earnings for FY20 by 24.8% and FY21 by 2.1% as we lowered our assumption of vehicle sales volume and margins. Introduce FY22 earnings at RM230.7m.

Maintain BUY, TP: RM4.50. Maintain BUY on MBMR with lower TP: RM4.50 (from RM4.80) based on 15% discount to SOP: RM5.33 valuation. MBMR is currently in net cash position of RM189.0m (48.3sen/share). We assumed dividend of 16 sen FY20, 20 sen FY21 and 22sen for FY22, translating to attractive yields of 5.6%-7.1%.

Source: Hong Leong Investment Bank Research - 28 May 2020