MBMR has reported a record 4QFY20 core PATMI at RM78.3m, boosting FY20 to RM165.2m, driven by strong sales on the implementation of SST exemptions and stimulus plans since Jun 2020. Management guided for continued strong sales volume into 2021, with the group’s current order backlog lasting up to 2 months. Management expects Perodua sales target of 240k units for 2021 is still intact despite the near term chip supply constraint. Maintain BUY on MBMR with unchanged TP: RM5.70 based on unchanged 10% discount to SOP: RM6.31.

FY20 results recap. MBMR reported a surprising strong 4QFY20 at RM78.3m, boosting FY20 core profit to RM165.2m, above market expectations. Nevertheless, the FY20 was still a drop of 14.4% YoY, due to the weakness in 1HFY20 being affected by the Covid-19 pandemic and implementation of MCO 1.0. Management is cautiously optimistic with FY21 outlook, leveraging onto the extended SST exemption to 30 Jun 2021, implementation of stimulus plans and commencement of national vaccination program.

SST exemptions. MBMR’s car sales and parts manufacturing have recovered strongly during 2HFY20 (see figure 11-15) with the SST exemptions in place, resulting in strong demand for new cars. MBMR is in a strong position to leverage on the extended SST exemptions to 30 Jun 2021 (from 31 Dec 2020). MBMR indicated the group has cleared majority of their inventory and is now working with major OEMs in boosting production volume and inventory replenishment. The group’s dealership segment has 2 months sales visibility with the current order backlogs in hand.

Perodua. Perodua has announced sales target of 240k units for 2021, a growth of 9% YoY. Despite the current shortage of chips, affecting production of some models up to March 2021, MBMR believe the sales target is still within reach as Perodua should be able to ramp up production volume when supply chain normalises while managing the production/sales mix at the meantime. The new SUV Ativa will be launched officially on 3 March and is believed to have received strong pre-launch bookings.

Disposal of OMI Alloy. The monetization of OMI Alloy assets has faced further delay due to the on-going Covid-19 and MCO implementation. Negotiations are still in place with a few keen buyers of the assets and equipment. Management has adopted a conservative valuation approach by recognising further asset impairment of RM7.6m in 4QFY20, resulting to lower net book value to RM30.6m. However, management has guided the initial targeted pricing has not changed (previously guided RM50m).

Dividend policy. Management remained committed on its 60% dividend payout policy, based on the holding company’s earnings which include dividend received from JV Hirotako; and associates Perodua and Hino group. The group has announced 11 sen interim dividend payout for FY20 and guided for another final dividend for FY20, once they finalize the dividend pay up proceeds from subsidiaries, JVs and associates. MBMR is currently in net cash position of RM258.9m (66.2 sen/share)

Forecast. Unchanged.

Maintain BUY, TP: RM5.70. Maintain BUY on MBMR with unchanged TP: RM5.70 based on 10% discount to SOP: RM6.31 valuation. MBMR is in good position to leverage on the implementation of tax exemptions. MBMR is currently in net cash position of RM258.9m (66.2 sen/share). We assumed dividend of 16sen for FY20, 20sen for FY21 and 22sen for FY22, translating to attractive yields of 4.8%-6.6%.

Source: Hong Leong Investment Bank Research - 1 Mar 2021