MBMR reported a stellar core PATMI of RM238.4m for FY22, following strong group sales volume and improved cost structure. Earnings outlook for FY23 remains strong with high order backlogs (especially for Perodua) while ongoing new orders remain relatively healthy. The impacts from supply chain issues, material costs and depreciated RM have been normalizing. Maintain BUY on MBMR with a higher TP: RM5.50 (from RM5.00) based on 10% discount to SOP of RM6.07. MBMR offers attractive dividend yields of 7.2% for FY23-24.

FY22 results recap. To recap, MBMR reported a record core PATMI for FY22 at RM238.4m, a growth of +60.9% YoY on overall higher group sales volume and improved margins, alongside the low base effect from lockdowns SPLY. The group completed the disposal of OMI Alloy in 1HFY22 and still has assets held-for-sale valued at RM20m under its balance sheet (mainly on properties no longer utilized), which management targets to realize complete disposal in 2023 with potential disposal gain.

Perodua. Associate Perodua has announced 2023 sales target of 314k units (+11.3%YoY) and production target of 330k units (+14.1% YoY), another new record high. As at end Jan-2023, Perodua has an order backlogs of 220k units with circa 20k units entitled for SST exemption. Perodua will absorb the SST exemption for some units which may not able to be delivered on time by 31 Mar, which we estimate to be relatively immaterial. There is strong demands for the newly launched Axia replacement model with over 27k new orders. The targeted production for the new Axia is 5.7k units per month.

FY23 outlook. MBMR group will continue to leverage onto the strong demand for automotive sector especially for Perodua in 2023. MBMR will also benefit through its DMMS dealership (for Perodua) subsidiary as well as its automotive components manufacturing. Management expects relatively stable margins in FY23 (vs FY22), given the expected: (i) higher volume; (ii) increasing contribution of higher margin aftersales services; (iii) normalizing impacts of supply chain issue, raw material costs and depreciated RM; and (iv) on-going cost rationalization plans. In addition, there will no more impact from Prosperity Tax in 2023.

Dividend. The group has paid out an attractive interim 12 sen/share dividend and special 25 sen/share and we expect another final dividend of 6 sen/share for FY22. For FY23-24, we have penned down a conservative 28 sen/share dividend payout and we see potential upside to our assumption given the expected strong earnings for FY23-24.

Forecast. We raised FY23 and FY24 earnings by 12.2% and 0.5% respectively.

Maintain BUY, TP: RM5.50. Maintain BUY on MBMR with a higher TP of RM5.50 (from RM5.00) based on 10% discount to SOP: RM6.07. MBMR is currently in a net cash position (72.3 sen/share) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yield of 7.2% for FY23-24.

Source: Hong Leong Investment Bank Research - 22 Feb 2023