Excluding the impairment adjustments amounting to RM253.4m, MBM Resources (MBM)’s 2017 core net profit grew by 8% yoy to RM104.2m, above consensus and our expectations due to higher associate contribution and narrowing EBIT losses. However, MBM declared a final DPS of only 1.5 sen (FY17: 3 sen, from 6 sen in FY16) as it seeks to repay the loans related to RM412m takeover and privatisation of Hirotako Holdings in 2012. Maintain HOLD with a target price of RM2.27 based on 9x FY18E EPS.

Better Topline Yoy

MBM’s 2017 revenue grew to RM1,732.3m (+3.7% yoy), attributed to better performance from both the motor trading (+3.0% yoy) and auto parts manufacturing (+7.1%) segments. The motor trading division saw higher sales of Daihatsu, Volkswagen and Volvo vehicles that more than offset lower sales of Perodua, which was affected by supply shortages during the launch of the new Myvi in mid-November. While the alloy wheel manufacturing plant continues to operate below optimal capacity, its sales volume grew by 7.1% yoy. The higher revenue from both motor trading and auto part manufacturing businesses, coupled with cost reduction / process enhancement initiatives, had helped narrowing its FY17 EBIT loss to RM4m (from RM17.9m in FY16).

Improvement QoQ

Sequentially, core PBT rose to RM39.9m (+77.9% qoq) excluding the aforesaid impairments. The strong 4Q17 core earnings was driven by higher share of results from the associates (+57.4%, attributable to the good response to Perodua MyVi), higher results from joint venture (+38.3%) and narrowed losses in the auto manufacturing division.

Maintain HOLD and Higher TP: RM2.27

We raised our 2018-19E earnings forecasts by 5%-6%, in line with Perodua’s sales target of 209k units in 2018 (+2% yoy). In tandem, we raised our TP to RM2.27 (from RM2.10) based on 9x FY18E EPS. Maintain HOLD. Upside risks: i) improvement in consumer spending, (ii) a strong reversal in the USD/MYR exchange rate. Downside risk: lower-thanexpected sales of Perodua. This marks the transfer of coverage.

Source: Affin Hwang Research - 23 Feb 2018