Earnings Improvement Expected

MBM’s 1Q17 net profit of RM19.5m (-42.3% qoq, +5.7% yoy) was in line with our and consensus estimates, which accounted for 19% of our and consensus full-year forecasts. Overall revenue increased 11.8% yoy, driven by better performance from both the motor trading and auto parts manufacturing divisions. No dividend was declared during the quarter. We maintain our HOLD rating and slightly lower our TP to RM2.30 post housekeeping adjustments.

YoY – PBT Rises on Stronger Revenue

MBM’s 1Q17 revenue improved 11.8% yoy to RM418.1m as the motor trading and auto parts manufacturing divisions recorded 10% yoy and 27.5% yoy increases, respectively. The improvement in the motor trading division was mainly due to better car sales volume in the lower-price segment, coupled with better model mix. Higher sales from OMI Alloy also led to an improvement in the auto parts manufacturing segment. The EBIT margin inched up a marginal 0.6ppts. Profit before tax (PBT) increased 3.4% yoy despite stronger revenue, dampened by weaker associate earnings, which fell 4.1% yoy.

QoQ – PBT Falls on Weaker Revenue and Associate Contribution

Sequentially, core net profit fell 42.3% qoq, dragged down by weaker overall revenue, which declined 6.6% due to both motor trading and auto parts manufacturing. The EBIT margin was up by a marginal 1.7%. The associate contribution also fell by 44.9% qoq to RM28.5m.

Maintain HOLD With Slightly Lower TP of RM2.30

We tweak our 2017-18 EPS forecasts slightly post housekeeping adjustments to take into account the release of annual report figures. We expect upcoming quarterly earnings to be stronger than 1Q17, with higher car sales volume (new launches from Perodua, Volkswagen and Volvo) expected and auto parts demand from the new car launches. We maintain our HOLD rating with a slightly lower 12-month TP of RM2.30 based on unchanged 9x our 2017E EPS.

Risks to Our Call

Upside risks: i) improvement in consumer spending, which would lead to higher auto sales; and (ii) a strong reversal in the USD/MYR exchange rate. Downside risk: lower-than-expected car sales volume.

Source: Affin Hwang Research - 25 May 2017