MBM Resources (MBM) reported a modest set of results – 2019 core net profit rose by 3% yoy on higher associate earnings, lower finance cost and lower effective tax rate. The results were in line with market and our expectations. We believe the weakened consumer sentiment and the current Covid-19 outbreak may affect the industry’s sales volume and hence, trimmed our 2020-21E earnings by 9-10%, and lowered our TP to RM5.40 (from RM6.00). At 7x 2020E PER, MBM’s valuations remain attractive.

2019 Core Net Profit Within Expectations

MBM’s 2019 core net profit grew by 3% yoy to RM200m on higher associate earnings (+1% yoy), lower finance cost and a lower effective tax rate of 3% (2018: 7%). While the group’s 2019 revenue grew by a strong 11% yoy, its 2019 EBITDA was relatively unchanged at RM51m (-0.4% yoy) due to a lower EBITDA margin of 2.5% (-0.3 ppt). On a segmental basis, the motor trading division segment saw a 11% increase in 2019 revenue, thanks to higher Perodua sales (+6% yoy to 240k) and better performance across the other marques. Revenue from the autoparts manufacturing division also grew by 6% yoy on higher component purchases from key customers. Overall, the results were within street and our expectations, accounting for 98% and 95% of respective forecasts. MBM announced a 7 sen interim dividend in 4Q19, bringing full year DPS to 13 sen (2018: 12 sen).

Sequentially, 4Q19 Core Profit Slipped by 31% Qoq to RM41m

Sequentially, 4Q19 core net profit was lower by 31% qoq due to weaker revenue from motor trading, a weaker EBITDA margin (-2.5ppt to 0.2%) and lower contribution from JV and associates (-22% qoq).

Maintain BUY With a Lower TP of RM5.40

We trimmed our 2020-21 earnings forecasts by 9-10% after incorporating a lower revenue growth and weaker associate contribution in view of the challenging economic outlook and weaker consumer sentiment, partly attributable to the Covid-19 outbreak. In tandem, we lower our TP to RM5.40 (from RM6.00) based on unchanged 10x PER, and reaffirm BUY. Key downside risks: lower-than-expected car sales volume and lower-thanexpected associates’ contribution.

Source: Affin Hwang Research - 27 Feb 2020