MBM Resources (MBM) reported a good set of results – 1H18 core net profit grew 92% to RM68m on higher revenue (+16%) as well as higher associates and JV contribution (+58%). MBM’s 1H18 results were broadly in line with our expectations, but above the street’s. We maintain our BUY rating with an unchanged price target of RM3.27. We continue to like MBM for its steady contribution from associates and the motor trading division, reduced losses from the alloy wheel segment and a stronger Ringgit. At 7x 2019E PER, MBM’s valuation looks attractive.

1H18 Results Grew 92% Yoy, Broadly Within Expectations

MBM’s 1H18 core net profit grew 92% yoy to RM68m, driven by higher revenue (+16%) and higher contributions from associates and JVs. All divisions recorded higher revenue due to the zero-rated GST period, with motor trading and auto part manufacturing increasing by 16% and 15% respectively. The contributions from associates and 51%-owned JV, Autoliv Hirotako (AHSB) were also higher by 58%, thanks to the stronger demand for the new Perodua Myvi and higher Total Industry Production (+10% yoy). All in, the earnings were broadly in line with our expectations (55% of our FY18 forecast but 58% of the street’s). MBM declared a 3-sen interim dividend for 2Q18 (vs. 1.5-sen interim dividend in FY17).

2Q18 Earnings Up 6% Qoq

Sequentially, MBMR’s 2Q18 core net profit rose 6% to RM35m on higher revenue (+6% qoq) and higher contribution from associates (+9% qoq). The motor trading division in 2Q18 grew 10% qoq to RM440m, driven by higher vehicle sales from the zero-rated GST period, but this was partly offset by lower auto parts manufacturing sales (-14% qoq) due to the plant closure during the festive holidays in June and lower production volume.

Maintain BUY With Unchanged TP of RM3.27

We make no changes to our earnings forecasts, but raise our dividend assumptions to 6 sen for 2018-2020E. We maintain our BUY call with an unchanged 12-month TP of RM3.27 based on a PE of 10x (in line with MBM’s 3-year mean fwd. PE). At 7x 2019E PER, MBM’s valuation is compelling in view of the: 1) steady contribution from associates and the motor trading segment, 2) lower losses from the alloy wheel business, and 3) a stronger Ringgit. Key downside risks: lower-than-expected car sales volume and lower-than-expected associates’ contribution.

Source: Affin Hwang Research - 29 Aug 2018