MBMR reported a core PATMI at RM63.3m for 1HFY21 (SPLY: RM22m) despite being affected by the pandemic. Management expects a stronger 2HFY21 with the reopening measures under NRP, as demand remains strong (backed by high backlog orders) due to SST exemptions, while the group is accelerating production to meet the demand for the remaining year. Maintain BUY on MBMR with unchanged TP: RM4.80 based on 10% discount to SOP of RM5.32. MBMR offers attractive dividend yield of 5.5%-7.7% for FY21-23.

1HFY21 results recap. MBMR reported a decent PATMI in 1HFY21 at RM63.3m (SPLY: RM22m) during this pandemic period. Demand for cars remained strong during the period driven by SST exemption measures, but hampered by supply constraints issue (due to microchip shortages and lock down) and movement restrictions (especially in Jun 2021, start of Phase 1). Management also highlighted the group’s strong cash position of RM246.1m (62.9sen/share) despite the pandemic, due to strict cost control measures.

2HFY21 outlook. Management expects a stronger 2HFY21 (similar to 2HFY20) with recent reopening measures under the National Recovery Plan (NRP), driven by strong carried-over order book of average 3 months (especially for Perodua and Volvo) and continued strong demand, as consumers taking advantage of the lower car prices prior to the ending of SST exemptions by end 2021. Indication of production supply from marque principals have been positive on their ability to meet the current order book as well as anticipated strong new orders.

Vaccination status. The group has achieved overall >90% single dose vaccination status and >70% full vaccination status. Group manufacturing segment has already commenced 100% operation, as the segment has already achieved 80% full vaccination rate, while its dealership network has fully opened with fully vaccinated staffs in place (non-fully vaccinated still working from home).

Perodua. Associate Perodua has fully commenced operation as they have reached 80% vaccination rate. Management indicated Perodua has started working 7-days a week in order to meet the high order backlog and the anticipated strong new orders. While Perodua has been managing its production mix, there is sufficient inventory of microchips to meet the high demand for the remaining of the year.

Disposal of OMI Alloy. The monetization of OMI Alloy assets continued to face delays due to the on-going Covid-19 and lockdown measures (including border closure). While some buyers have dropped out, management has indicated there are interest from new foreign buyers expressing interest for the assets and equipment. Any conclusive deal would need to wait until more movement restriction relaxation by the government, in allowing foreigners to travel into Malaysia (for the prospective buyers to view and check the equipment and assets). The current net book value of the asset is RM30.6m.

Forecast. Unchanged.

Maintain BUY, TP: RM4.80. Maintain BUY on MBMR with unchanged TP: RM4.80, based on 10% discount to SOP: RM5.32. MBMR is currently in a net cash position (62.9 sen/share) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yield of 5.5%- 7.7% for FY21-23.

Source: Hong Leong Investment Bank Research - 27 Aug 2021