• Following a soft start to 2021, we forecast unit sales to pick up in the subsequent months, in view of easing of the lockdown and continued support from sales tax exemption for 1H21
• Associate profits (>90% group earnings) should see decent recovery from 2020’s low base, driven by Perodua’s new launches and sustained demand for existing models given their affordable price points
• At 7.3x forward PER (slightly above 5-year mean), we deem MBM to be fairly valued in the absence of significant catalysts. Maintain HOLD with TP of RM3.60

Soft Start to 2021, But Seeing Gradual Improvement Hereon

MBM’s core brand, Perodua (c.88% of volume), registered sales of 33.5k units (- 8.0% yoy) over Jan-Feb 2021, based on the latest TIV. Overall TIV (Ytd Feb) declined to 75.6k (-10% yoy), as most marques suffered a slowdown amid MCO 2.0. We take comfort that Perodua fared rather solidly (marginally down -1.8% mom) in spite of MCO over February. Looking ahead, we expect mom improvement to transpire as lockdown eases and sales tax exemption supporting volumes.

… Underpinned by Sustained Interests in MBM’s Core Offerings

The recent launch of Perodua Ativa saw good traction - registering orders north of 6,000 units as at 5th March. Overall, we forecast Perodua’s unit sales to trend higher at 230k yoy (+5% yoy) for 2021E. In tandem, we expect associate profits to see a rebound, backed by new Perodua launches and sustained demand for its existing models given their affordable price points.

Auto Parts Business to Benefit From Higher Industry Production

Elsewhere, we note that Perodua is the largest buyer of automotive components in Malaysia and the group is targeting a historical high production of 272k units for 2021E (+23% yoy). Premised on overall higher industry production, we believe MBM’s auto parts business is a key beneficiary of increased parts purchases and hence should induce a higher contribution from the auto-parts segment.

Maintain HOLD; Positives Seem Priced in

No changes to our earnings estimates. Our TP remains unchanged at RM3.60 based on a target PER of 8x. At 7.3x forward PER, MBM trades slightly above its 5-year mean – which we deem fair in the absence of significant near term catalysts. Maintain HOLD as positives look well priced in at this juncture.

Source: Affin Hwang Research - 25 Mar 2021