• MBM’s 2020 core net profit came in at RM165.7m (-18.5% yoy) – ahead of our and consensus estimates
• 4Q20 results posted a strong improvement qoq as core profit rose 78% yoy to RM78.3m boosted by higher vehicle sales and JV/associate contribution
• In view of the results outperformance, we raise our earnings estimates by 5.6- 8.2% for 2021-22E. Maintain HOLD with a slightly higher TP of RM3.60

2020 Core Net Profit Declined 18.5% to RM165.7m

MBM Resources (MBM) posted a revenue of RM1.8n (-13.8% yoy) for 2020, on the back of 1H20 lockdown which led to a production halt for 1.5 months, though this was then partially offset by the stronger 2H20 performance from both the motor trading (sales tax exemption) and auto parts divisions. Meanwhile, share of result from JV and associates came in at RM157.5m (-22.3% yoy), similarly owing to the lockdown impact. Overall, 2020 core net profit of RM165.7m (-18.5% yoy) was ahead of our and consensus expectations. The surprise was largely on higher-than-expected contribution in MBM’s motor trading and contribution from its JV and associates.

Sales Tax Exemption Likely to Sustain Buying Interest

On a qoq basis, MBM’s revenue dipped slightly to RM563.4m (-6.2%) owing to limited stock supply. Nonetheless, core net profit rose strongly to RM78.3m (+20.5%) on the back of an improvement across all segments, and further thrusted by JV/associate profits rising +20% to RM71.8m. The improvement was largely due to easing of the lockdown and the cheaper car prices on sales & service tax (SST) exemption. Moving ahead, notwithstanding a slight blip in 1Q21 due to the impact of MCO, we believe the extension of sales tax exemption should continue to garner buying interest for both the group’s passenger and commercial vehicles, more so in 2Q21.

Maintain HOLD

In view of the result outperformance, we raise our 2021-22E earnings estimates by 5.6- 8.2%, accounting for higher car sales and associate contribution. Post revision, our new TP is revised higher to RM3.60 (from RM3.40), based on an unchanged target PE multiple of 8x applied on our 2021E EPS. At current juncture, we believe stock price is likely to have sufficiently priced in the positives. Reaffirm Hold. Key upside/downside risks: i) higher-/lower-than-expected contribution from Perodua associates, ii) higher-/lowerthan-expected car sales volume and production and iii) favourable/unfavourable forex fluctuations.

Source: Affin Hwang Research - 26 Feb 2021