Stripping off an impairment loss of goodwill of RM10.8m, MBM Resources (MBM) reported a core net profit of RM18.1m in 3QFY17 (+12.1% qoq, -15.0% yoy). Cumulative 9M17 net profit of RM53.7m (-8.2% yoy) is in line with our forecast, accounting for 78% of full-year estimate but below consensus (66% of street’s). We maintain our Hold recommendation and TP of RM2.10.

Better 9M17 Top-line Growth

MBM’s 9M17 revenue increased by 4.5% yoy to RM1,288.8m driven by better performance from both the motor trading (+3.8%) and auto parts manufacturing (7.4%) segments. The improvement in top-line growth was attributable to better car sales volume (+3.8% yoy) and revised sales and marketing strategies which lifted sales in the motor trading segment, as well as a gradual recovery of demand from the auto parts manufacturing segment (+7.4% yoy). Despite the higher revenue, 9M17 core earnings declined 8.2% yoy to RM53.7m, dragged by the continued losses incurred at its alloy wheel plant and weaker associate earnings which fell 10.3% yoy.

Showing Some Signs of Recovery

Sequentially, core net profit improved 12.1% qoq, thanks to stronger overall revenue, which rose 15.6% qoq coming from both motor trading (+16.9%) and auto parts manufacturing (+1.3%). Although MBM still reported an operating loss in 3Q17, losses narrowed with the ongoing implementation of its cost structure review.

Maintain HOLD With a TP of RM2.10

We maintain our earnings forecast, HOLD rating and TP of RM2.10, which is pegged to an unchanged target PER of 9x. Risks to our recommendation include: i) improvement in consumer spending, which would lead to higher auto sales; (ii) improvement in banks’ hire-purchase approvals and (iii) turnaround in the OMI Alloy wheel plant. Downside risk: lower-than-expected car sales volume.

Source: Affin Hwang Research - 23 Nov 2017