As expected, MBMR reported core loss of RM5.1m for 2QFY20 vs. profit RM27.1m in 1QYF20 and RM50.6m in 2QFY19), dragged down 1HFY20 core profit to RM22.0m (-76.1% YTD), achieved 18.0% of HLIB’s forecast and 17.0% of consensus. We believe worst is over, MBMR is expected to record strong earnings rebound due the group’s high leverage onto the strong Perodua sales following implementation of PENJANA stimulus plans and tax exemptions. Declared a first interim dividend of 5 sen (ex-Date: 04 Sep) for FY20, indicating the group’s anticipated strong earnings and cash flow in 2HFY20. Maintain BUY on MBMR with unchanged TP of RM5.00 based on 10% discount to SOP of RM5.50, with attractive dividend yield of 5.1%-7.0% for FY20-22.

Within expectations. Reported core loss of RM5.1m for 2QFY20 (vs. profit RM27.1m in 1QYF20 and RM50.6m in 2QFY19), dragged down profit for 1HFY20 to RM22.0m (vs. profit RM92.1m in 1HFY19), accounted for 18.0% of HLIB’s FY20 forecast and 17.0% of consensus. The results were within our expectations, given the anticipated 2QFY20 loss during MCO period, while we now expect strong rebound in earnings in 2HFY20 following the implementation of sales tax exemptions and PENJANA stimulus plans.

Dividend. Declared a first interim dividend of 5 sen (ex-Date: 04 Sep 2020) for FY20, signalling an expected strong earnings and cashflow for the remaining of the year.

QoQ & YoY. Recorded core LATAMI of -RM5.1m, from PATAMI of RM27.1m in 1QFY20 (QoQ) and RM50.6m in 2QFY19 (YoY), following lower group sales volume during the implementation of MCO as well as deteriorated consumer sentiment. Group vehicle sales dropped 25.3% QoQ and 48.1% YoY while associate Perodua vehicle sales dropped 48.3% QoQ and 57.4% YoY.

YTD. Similarly, profits declined 76.1% to RM22.0m on lower group vehicle sales (- 36.1% YTD) and contribution from JV and associates (Perodua and Hino).

Outlook: While the on-going Covid-19 continues to post uncertainties towards Malaysia economy, management is witnessing positives demand for the group’s product following government’s implementation of stimulus plans and sales tax exemptions. Perodua has reported strong sales rebound to 21.3k units in Jun and 26.0k units in July. CEO Datuk Zainal Abidin Ahmad quoted that Perodua plans to increase monthly production to 25k units (98-99% of capacity) for Aug-Dec 2020, in order to meet the current strong demand. MBMR has also implemented cost tightening measures and new marketing platforms in view of the challenging consumer behavior.

Forecast. Unchanged.

Maintain BUY, TP: RM5.00. Maintain BUY on MBMR with unchanged TP: RM5.00 based on 10% discount to SOP: RM5.50. MBMR is currently in a net cash position (RM166.8m) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models

Source: Hong Leong Investment Bank Research - 21 Aug 2020