• MBM’s 9M20 core net profit came in at RM87m (-42% yoy), accounting for 81% and 66% of our and consensus full-year estimates.
• MBM’s 3Q20 results recorded a strong qoq improvement as revenue rose to RM600m (>100% qoq) and core earnings returned to the black.
• In light of the better 9M20 results, we raise our 2020-22E EPS by 16%-29%. Maintain Hold with a TP of RM3.20 based on 8x 2021E PER.

9M20 core net profit of RM87m; above our expectation

MBM Resources (MBM) posted a weak set of results: 9M20 core net profit declined by 42% yoy to RM87m on the back of dismal sales owing to the temporary production halt owing to the lockdown measures. Overall, the results tracked ahead our expectations but were within the street’s full-year estimates, accounting for 81% and 66% of our and consensus full-year estimates. The surprise was due to the higher-than-expected contribution in MBM’s motor trading and auto parts division and higher-than-expected contribution from its JV and associates.

A strong sequential recovery on a low base effect

On a qoq basis, MBM’s revenue rose to RM600m (>100% qoq) and core earnings saw a strong recovery to RM65m (vs. 2Q20 core loss of RM5m) respectively. The improvement was largely due to the lockdown ease and the cheaper car prices on sales & service tax (SST) exemption. This has also led to a stronger contribution from JV and associates to RM60m (+7% yoy), its highest since 4Q18; MBM’s 22.6%-owned Perodua sales volume doubled to 70.8k units in 3Q20. Notably, MBM’s EBITDA margin rose by 1.9ppts qoq to 3.9%, thanks to the various cost reduction measures implemented and its long-term Transformation Programme. Moving ahead, we believe the 4Q20 results will remain favourable as MBM will likely benefit from the last phase of the tax holiday period and the year-end promotions.

Maintain Hold with unchanged TP of RM3.20

We raise our 2020-22E core EPS by 16%-29%, after imputing in the strong 9M20 results, and considering our previous earnings forecasts were conservative. Post revision, we maintain MBM’s TP at RM3.20 based on a lower valuation multiple of 8x (from 10x; 5- year mean) as we anticipate car sales volume to moderate moving in 2021, post the SST exemption period. At 8x 2021E PER, valuation has priced in the positives. Reaffirm Hold. Key upside/downside risks: i) higher-/lower-than-expected contribution from Perodua associates, ii) higher-/lower-than-expected car sales volume and production and iii) favourable/unfavourable forex fluctuations.

Source: Affin Hwang Research - 20 Nov 2020