MBMR reported core PATMI at RM121.5m for 1HFY22, an exceptional performance following higher group sales volume and improved cost structure . Outlook for 2HFY22 remains exciting with high order backlogs (especially Perodua) while on-going new orders remain relatively healthy, as the economy has fully reopened. The expected higher sales volume will be able to cushion the impact of increasing raw material costs, high logistic expenses and USD appreciation. Maintain BUY on MBMR with unchanged TP: RM5.00 based on 10% discount to SOP of RM5.60. MBMR offers attractive dividend yields of 6.5%-8.3% for FY22-24.

1HFY22 results recap. To recap, MBMR reported a strong core PATMI for 1HFY22 with RM121.5m, a stellar growth of +90.7% YoY on overall higher group sales volume and improved margins (from cost-cutting measures being implemented since starting of the pandemic), while there were series of lockdowns SPLY. The group has completed the disposal of discontinued OMI Alloy, netting disposal gain of RM40.9m in 1HFY22.

2HFY22 outlook. Demand for new cars remained strong with Perodua dealership (DMMS) having order backlog of average 8 months (depending on model variants), while other dealerships have order backlog of 2-3 months. Management indicated the dealerships are still receiving considerable new bookings (20-30% lower as compared to monthly average in 1HFY22). Management expects overall industry TIV may go beyond 630k units (forecasted by MAA). While demand remained strong, the industry may be challenged by the ongoing supply chain shortage (mainly due to labour issue), increasing material costs, logistics expenses and USD appreciation. The improving demand for aftersales services (fetching higher margins) will also benefit the group.

Perodua. Associate Perodua achieved sales volume of 125.7k units in 1HFY22, potentially to surpass its current set sales target of 247.8k units (+30.2% YoY). Management is expected to revise its target given the current high order backlogs of over 240k units, after taking into account of productions and supply chain issues. Perodua will focus on fulfilling its order backlog by 31 Mar 2023, by ramping up overall production capacity and supporting the vendors. Newly launched Alza replacement received more than 39k orders (as compare to planned production rate of 3.5k units/month). Perodua is poised to register a new record high sales volume in 2022, resulting exceptional high earnings for the year and a potential high dividend payout.

Dividend. The group has announced an attractive interim 6 sen/share dividend payout and special 10 sen/share (following disposal of OMI Alloy) or RM62.5m for 1HFY22. Management guided for another second interim dividend and final dividend for 2HFY22. With the indicative continued high dividend payout from Perodua and strong earnings of group subsidiaries and JV, we expect total dividend for FY22 to be higher than our assumed 22 sen/share. The current net cash position of MBMR group remains healthy at 62.9 sen/share.

Forecast. Unchanged.

Maintain BUY, TP: RM5.00. Maintain BUY on MBMR with an unchanged TP of RM5.00 based on 10% discount to SOP: RM5.60. 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 yields of 6.5%-8.3% for FY22-24.

Source: Hong Leong Investment Bank Research - 29 Aug 2022