MBMR reported a strong rebound in earnings to RM65.0m for 3QFY20 (reversing previous loss of -RM5.1m in 2QFY20 and +21% YoY), boosted 9MFY20 core profit to RM87.0m (-40.3% YoY), achieved 71.3% of HLIB’s forecast and 66.2% of consensus. We deem the result above expectation as we expect continued strong earnings in 4QFY20, driven by the SST exemption measures ending in Dec 2020. We raised FY20 earnings by 15.1% and kept FY21-22 earnings relatively unchanged. Maintain BUY on MBMR with unchanged TP of RM5.00 based on 10% discount to SOP of RM5.50, with attractive dividend yield of 5.0%-6.9% for FY20-22.

Above expectations. Reported core profit of RM65.0m for 3QFY20 (vs. loss -RM5.1m in 2QYF20 and +21% YoY) and profit RM87.0m for 9MFY20 (vs. profit 145.8m in 9MFY19), accounted for 71.3% of HLIB’s FY20 forecast and 66.2% of consensus. We deem the result above our expectations, given the anticipation for 4QFY20 to continue reporting strong sales driven by consumers taking advantage of the automotive sales tax exemptions ending Dec 2020.

Dividend. None.

QoQ & YoY. Recorded core PATAMI of RM65.0m vs. LATAMI of -RM5.1m in 1QFY20 (QoQ) and +21% YoY, following stronger group sales volume with the implementation of automotive SST exemption since mid-Jun 2020. Group vehicle sales improved by 123.9% QoQ and 31.0% YoY while associate Perodua vehicle sales improved by 182.9% QoQ and 20.8% YoY.

YTD. Profits declined by 40.3% to RM87.0m on lower group vehicle sales (-14.8% YTD) and contribution from JV and associates (Perodua and Hino), mainly affected by the implementation of MCO during 1HFY20 in bid to control the outbreak of Covid-19.

Outlook. While the on-going Covid-19 pandemic continues to post uncertainties towards Malaysia’s economy, there is strong demand for the group’s products following government’s implementation of stimulus plans and sales tax exemptions since mid-Jun 2020 with associate Perodua reported sales growth of 182.9% QoQ and 20.8% YoY. Perodua CEO Datuk Zainal Abidin Ahmad quoted that Perodua has increased monthly production to 25k units (98-99% of capacity) for Aug-Dec 2020, in order to meet the current strong demand. MBMR has seen positive impact from the ongoing cost tightening measures and new marketing platforms in view of the changing consumer behavior.

Forecast. We raised FY20 earnings by 15.1% to reflect the higher than expected sales and margins for the period, while FY21-22 remained relatively 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 (RM163.0m) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models.

Source: Hong Leong Investment Bank Research - 26 Nov 2020