Below expectation

MBM’s 9M16 net profit of RM58.1m was below our and consensus expectation. While year-end sales will help drive volume growth in 4Q16, margins will likely to remain under pressure due to recent weakening in RM. Meanwhile, auto parts manufacturing could see better volumes moving forward driven by new model launches despite seeing margin squeeze as RM weakens. With all things left unchanged, we maintain our SELL call on MBM with unchanged TP of RM1.98 pegged to 9x 2016E EPS.

9M16 results below expectations

MBM reported 3Q16 net profit of RM21.3m bringing 9M16 net profit to RM58.1m which made up 68% and 65% of our and street estimate. Motor trading revenue fell 2% yoy in line with contraction in TIV; auto part manufacturing revenue grew 11% - nevertheless, OMI Alloy wheels remain in the red as plant continue to produce below optimum level.

Better motor trading offset lower auto parts manufacturing

3Q16 net profit grew 147% yoy to RM21.3m primarily due to better associate performance which soared 138.2% folllowing the launch of Perodua Bezza in July and improved volumes from Hino which received good market response. Despite overall vehicle sales declined by 3.4% yoy, MBM benefited from good product mix from launch of Perodua Bezza and Volvo XC90. This partially offsetted the losses from auto parts manufacturing.

Supported by associate contribution qoq

Revenue inched up 1.1% qoq to RM431.9m as auto parts manufacturing segment remains challenging. Notwithstanding, net profit increased 16% qoq due to better associate contribution which grew 12.4%.

Maintain SELL

We maintain our earnings forecast unchanged at this juncture pending post results management update meeting. Maintain our SELL rating and TP at RM1.98 pegged to 9x 2016E EPS. Risks to our recommendation include: (i) significant improvement in consumer spending, (ii) strengthening in RM, and (iii) turnaround in OMI Allow wheel plant

Source: Affin Hwang Research - 24 Nov 2016