MBMR reported a stellar core PATMI RM182.3m for 9MFY22, following strong group sales volume and improved cost structure. Earnings outlook for 4QFY22 remains strong with high order backlogs (especially for Perodua) while on going new orders remain relatively healthy, likely to flow over into FY23. The ongoing pressure from supply chain issues, material costs and appreciated USD has also started to ease recently. Maintain BUY on MBMR with unchanged TP: RM5.00 based on 10% discount to SOP of RM5.60. MBMR offers attractive dividend yields of 6.7%-8.5% for FY22-24.

9MFY22 results recap. To recap, MBMR reported a strong core PATMI for 9MFY22 at RM182.3m, a growth of +212.3% YoY on overall higher group sales volume and improved margins, given the low base effect from lockdowns SPLY. The group completed the disposal of OMI Alloy in 1HFY22 and still have assets held-for-sale valued at RM20m under its balance sheet (mainly on properties no longer utilized).

4QFY22 outlook. Demand for new cars remains strong with Perodua dealership (DMMS) having order backlog of up to 8 months (depending on model variants), while other dealerships have order backlogs of 2-3 months. Management expects potentially stronger sales volume in 4QFY22 given the improving inventory supplies. Depending on marques, management indicated Perodua dealerships are receiving new bookings back to pre-pandemic levels (after a slowdown in 3QFY22 post ending of SST exemptions) while new bookings for other marques are decent despite being 20-30% lower than the average in 1HFY22. Management expects overall industry TIV may actually record a new high of 700k units (above 630k units forecasted by MAA). However, management cautioned the industry may be challenged by the ongoing supply chain shortage, higher material costs, logistics expenses and appreciated USD. Nevertheless, management has guided material costs has started to ease downward and USD has depreciated recently. The improving demand for aftersales services (fetching higher margins) will also benefit the group.

Perodua. Associate Perodua achieved sales volume of 196.1k units in 9MFY22, likely to surpass its existing set sales target of 247.8k units (+30.2% YoY). The current order backlogs remains high at c. 250k units, as demand remains strong despite ending of SST exemptions by 30 June 2022. Management is pushing for higher production output in order to fulfil its high order backlog and reduce waiting period. Newly launched Alza replacement received more than 65k orders by now (as compare to planned production rate of 3.5-4.0k units/month).

Dividend. The group has paid out an attractive interim 6 sen/share dividend 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 see potential upside to our assumed 22 DPS for FY22. The current net cash position of MBMR group remains healthy at 65.0 sen/share despite having paid out dividends for 1HFY22.

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 (65.0 sen/share) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yields of 6.7%-8.5% for FY22-24.

Source: Hong Leong Investment Bank Research - 29 Nov 2022