Trimming estimates. MBM's 1H2012 earnings announced last week fell short of estimates, accounting for only 36% of our full year forecast of RM196m vs consensus' RM162m. The earnings shortfall was attributed to the lower than expected earnings contributions from Hirotako and OMI, hit by the drop in airbag production volume from Proton. Daihatsu earnings also fell short as a result of the phase-out of the Delta trucks. We summarise key takeaways of it analysts briefing below:

Hirotako drags earnings. Hirotako's lower than expected contribution was largely attributed to the sharp drop in production volume from Proton, of which dropped by some 18.6% y-o-y in 1H 2012. This was a result of strict lending guidelines that dented overall vehicle sales, due to the slower loan processing times and declines in the approval rate. However, production is expected to ramp up for both national carmakers head of the festive season. Loan processing times, too, have since improved and coupled by additional airbag volume orders expected, following the compulsory dual airbag policy effective 1 July. This will boost Hirotako's overall production volume and earnings over the remaining 2H2012. Management hopes to see an additional RM5m per month (roughly translating to RM30m in revenue or a 22% increase) from the dual airbag fitment, as the current fitment rate for the Viva and Saga models is only at 60%.

OMI takes a hit too, but expects better 2H2012. The steep drop in production volume from Proton also took a toll on OMI, due to the decline in steel wheels manufactured, which added pressure on margins. As we pointed out earlier though, 2H2012 earnings are expected to improve as production ramps up.