MCEHLDG: Accumulate for brighter days ahead

We recently met up with the management with the following key updates:

Stronger performance anticipated from Proton and Perodua, which collectively accounted for c.85% of the group’s top line. This is premised on higher YoY production forecast, guided by the national car makers. Additionally, there is potential for the group to increase its ASP in Proton’s Geely-based model, with more tenders for the S70 and X50 expected to enhance localization rates. Looking ahead, the imminent launch of the Perodua D66B (expected in 2H24) and Perodua’s first EV model (scheduled for 4Q25) are poised to bolster its earnings. We gather that MCE is closely collaborating on the development of the EV model, which bodes well for commanding higher ASP per vehicle.

Export Sales to fare strongly. To recap, MCE's auto parts, including interior lamps and functional switches, are indirectly distributed to Toyota's overseas markets through Toyota Malaysia. This venture has witnessed its sales to double since its inception last year, and the group anticipates further growth ahead through the introduction of new product offerings and expansion into new regions. Additionally, MCE is actively pursuing more export sales deals, especially in light of the escalating tensions in the US-China trade war, which have prompted supply chain relocations.

With all considered, we expect MCE to record strong YoY earnings for FY25, premised by (i) buoyant sales outllook to Proton and Perodua; (ii) commencement of the Serendah plant catering for more advance technological products for both domestic and overseas orders; and (iii) New income streams from products such as infotainment systems and meter cluster display.

Set to advance further. Building upon bullish indicators, MCE is positioned for continued advancement. The expected bullish momentum could propel the price towards the RM1.87-1.92-1.98 region. Cut loss at RM1.59

Collection range: RM1.65-1.69-1.75

Upside targets: RM1.87-1.92-1.98

Cut loss: RM1.59

Source: Hong Leong Investment Bank Research - 26 Mar 2024