MBMR reported a new record 4QFY20 core PATMI of RM78.5m (+20.8% QoQ; +66.2% YoY), driven by strong sales and margins during the quarter. However, FY20 core profit still dropped 14.2% YoY to RM165.5m, dragged by the losses in 1HFY21 due to implementation of MCO1.0. We deem the results above expectations (achieved 115.3% of HLIB’s forecast and 125.9% of consensus). We expect MBMR to continue leverage on the strong automotive sales in 2021. Maintain BUY on MBMR with unchanged TP of RM5.70 based on 10% discount to SOP of RM6.31, with attractive dividend yield of 6.0%-6.6% for FY21-22.

Above expectations. Reported a record quarter core profit of RM78.5m for 4QFY20 (+20.8% QoQ; +66.2% YoY). However, FY20 earnings still saw a drop of 14.2% to RM165.5m due to the spread of Covid-19 pandemic and implementation of strict MCO during 1H20. We deem the result above expectations (115.3% of HLIB’s forecast and 125.9% of consensus). Major exceptional item was the RM7.6m impairment on discontinued asset OMIA in 4QFY20.

Dividend. Declared a second interim dividend of 6 sen/share (ex-date: 11 March 2021), boosting YTD dividend to 11 sen/share (3.3% yield). We expect another round of final dividend payout (9 sen in FY19).

QoQ. Core PATAMI improved 20.8% to RM78.5m following improved dealership margins, stronger automotive components sales and improved contribution from associate - Perodua.

YoY. Core PATAMI improved 66.2% on overall higher group sales volume and margins, including higher contributions from associate – Perodua, due to strong demand during SST exemption period.

YTD. Profits declined by -14.2% to RM165.5m on lower group sales volume 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. The group will continue to enjoy the strong automotive demand in 2021, driven by the extension of SST exemption to 30 Jun 2021, exciting new model launch by Perodua and economic recovery following implementation of stimulus plans and commencement of national vaccination program. Perodua has set a new sales target of 240k units in 2021 (+9% YoY). The supply of chip shortages is not expected to affect Perodua sales target as the OEM will ramp up productions when supply normalises. MBMR has also benefited from the ongoing cost tightening measures and new marketing platforms in view of the changing consumer behavior.

Forecast. Unchanged.

Maintain BUY, TP: RM5.70. Maintain BUY on MBMR with unchanged TP: RM5.70 based on 10% discount to SOP: RM6.31. MBMR is currently in a net cash position (RM258.9m) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models.

Source: Hong Leong Investment Bank Research - 26 Feb 2021