MBMR reported core PATMI RM47.0m for 1QFY21, below HLIB’ expectation (due to lower than expected sales on lack of inventory at the start of the year), but within consensus. We expect MBMR to continue leveraging on the strong automotive sales in 2021 due to on-going SST exemption measures (potentially extend until 31 Dec 2021). Maintain BUY on MBMR with lower TP: RM5.20 (from RM5.70) based on 10% discount to SOP of RM5.82, post earnings adjustments. MBMR offers attractive dividend yield of 6.0%-7.9% for FY21-23.

Below expectation. Reported core profit of RM47.0m for 1QFY21, lagged behind HLIB’s forecast of RM242.1m (19.4%), mainly due to lower than expected group sales volume, affected by implementation of MCO2.0 during the quarter. However, the result was within consensus’s number of RM196.5m (23.5%).

Dividend. Management has recently declared a final dividend of 9sen/share (ex-date: 16 Jun 2021) for FY20, boosting total dividend for the previous financial yea r to 20sen/share (yielding 6.3%).

QoQ. Core PATAMI declined 40.0% to RM47.0m, due to accelerated production and car deliveries during year end 2020, prior to the previously anticipated ending of SST exemption on 31 Dec 2020 (now extended to 30 Jun 2021), combined with lack of inventory for the starting of year 2021. Furthermore, the group dealership also recognised sales incentives during year end.

YoY. Core PATAMI improved 72.9% on overall higher group sales volume and margins, including higher contributions from associate Perodua, due to strong demand during SST exemption period.

Outlook. The group will continue to enjoy the strong automotive demand in 2021, driven by the extension of SST exemption to 30 Jun 2021 (and the industry is approaching government to further extend up to 31 Dec 2021) and exciting new model launches by Perodua. Overall economy is expected to improve in 2021 from 2020, following implementation of stimulus plans and commencement of national vaccination program. Despite current chip shortages issue, Perodua is maintaining its sales target of 240k units in 2021 (+9% YoY). 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 from the pandemic.

Forecast. Cut earnings for FY21 and FY22 by 15.6% and 7.0%, after accounting for lower group car sales (assuming SST exemption ends by 30 Jun 2021 for now). Introduce FY23 earnings at RM256.6m.

Maintain BUY, TP: RM5.20. Maintain BUY on MBMR with lower TP of RM5.20 (from RM5.70) based on 10% discount to SOP: RM5.82. MBMR is currently in a net cash position (RM241.1m) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yield of 6.0%-7.9% for FY21-23.

Source: Hong Leong Investment Bank Research - 28 May 2021