MBM Resources (MBM) reported another strong set of results – 9M19 core net profit rose by 24% yoy to RM151m on higher revenue (+14% yoy) and higher associates and JV contributions (+25% yoy). The strong results were above our and market expectations. We believe Perodua will chart a sales record of 235k units in 2019, thereby driving MBM’s associates’ earnings growth in 4Q19. In view of the sustained demand for Perodua models, we raise our EPS by 23-32% for 2019-21E, and maintain our BUY rating with a higher TP of RM6.00 (from RM4.55). At 6x 2020E PER, MBM’s valuation looks attractive.

9M19 Core Net Profit of RM151m, Above Expectations

MBM’s 9M19 core net profit grew by 24% yoy to RM151m, driven by higher revenue (+14%) as well as higher associates and JV contributions (+25%). The motor trading division’s 9M19 revenue improved by 15% yoy on higher vehicle sales (+3% yoy, ie, Perodua, Daihatsu and Hino trucks); MBM’s 9M19 auto-parts manufacturing revenue (ex. alloy wheel operations) also grew by 8% yoy, riding on higher total industry production (+1% yoy). Elsewhere, contributions from associates rose by 25% yoy to RM156m, thanks to the continued demand for Perodua key models (+8% yoy). Overall, the results were above our and market expectations – 9M19 core net profit accounted for 81-88% of street and our full-year forecasts. The earnings surprise was largely due to the higher-than-expected contribution from associates in 9M19.

Sequentially, Core Net Profit Was 4% Higher

Sequentially, 3Q19 headline profit was lower by 25% qoq due to lower revenue (-8% qoq) and a RM24.8m disposal gain on its 22% stake in Hino in 2Q19. Nonetheless, the weaker performance was partly cushioned by the higher contributions from associates and JV (+6% qoq). Stripping of the EIs and discontinued operations, MBM’s 3Q19 core net profit improved by 4% qoq to RM56m.

DPS Revised to 19-20sen for 2019-21E

During the last briefing, management clarified that MBM’s announced 60% dividend payout policy is based on the holding company’s earnings and not the consolidated Group earnings. As such, we lowered our dividend payout to 35% of Group’s earnings (from 60%), which translates to DPS of 19- 20sen for 2019-21E (from 30-33sen). No dividends were declared during the quarter.

Source: Affin Hwang Research - 22 Nov 2019