FY12 results revisited. To recap, MBM's FY12 net profit improved by 12% YoY to RM135m backed by a higher top line growth (+36% YoY) from increased vehicle sales, a better performance from its manufacturing division and a bigger contribution from its associates. Despite a sluggish 1QFY12 which was affected by the stricter lending guidelines introduced in early 2012, the group sold a total of 25,583 units of vehicle for the year, up by 10% YoY. Sales were mainly boosted by Volkswagen, which garnered sales of 13,003 units (+77% YoY).

Competition ahead.Going forward, the group anticipates a more competitive business environment with the increase of international players in the local scene. This may cause significant shifts in the current market share of industry players, which may affect the longstanding leadership of the national car makers. Based on the Malaysian Automotive Association's (MAA) data, as at end-2012, the market share of the Korean and continental car makers have been increasing YoY. Although the percentage share of the Chinese makes is relatively unchanged, there are currently more brands in the market compared to a year ago (2012: 11 vs. 2011: 3).

Opportunities for manufacturing. There are better prospects for the group's manufacturing division compared to its motor trading business, which is facing a more subdued outlook in an already saturated Malaysian market. As auto safety regulations become stricter, we believe that there will be ample opportunities for the group to capitalise on the additional components that would be required or mandated to increase drivers and passengers safety.

Contribution from alloy wheel. The construction of Oriental Metal Industries' (OMI) plant, which will manufacture alloy wheels, has been completed, and it will start supplying to Perodua by 1H12. However, the contribution from OMI will only be felt from 2014 onwards.

Mitsui increased its stake in Daihatsu. The group has sold a 20% stake (4,000,000 ordinary shares of RM1.00 each) in Daihatsu Motors Sdn Bhd (DMSB) to Mitsui, reducing its holding in DMSB to 51.5% from 71.5%.

In turn, the share sale has increased Mitsui's stake in DMSB to 30% from 10% previously. Mitsui will pay RM83m in cash for the additional stake and the exercise is expected to be completed by 1QCY2013. MBM is expected to realise a gross gain on disposal of RM68m (its total cost of investment in DMSB is RM15.2m) at the company level. However, at the group level, MBM is not expected to incur any gain or loss from the disposal. We have adjusted our forecasts, reducing our FY13 net profit by 5% after accounting for a higher minority interest share deduction after the sale and also after slightly fine-tuning our sales numbers.

Downgrade to UNDERPERFORM. Due to our earnings revision, our TP has been cut to RM3.35 (based on 9x FY13 EPS) from RM3.40 previously. At the current price, the counter only offers a total return of 0.4%.

Source: Kenanga