FY17 CNP of RM93.7m (-3%) beat both our/consensus expectations by 20% of full-year estimates, attributed to the higher-than-expected contribution from JV, Autoliv Hirotako. We upgrade MBMR to OUTPERFORM with a TP of RM2.85 based on 11x FY18E EPS which at its 5-year mean Fwd. PER. The stock is trading at an undemanding 8.8x FY18E PER compared to 5-year Fwd. average of 11x.

FY17 above expectations. FY17 CNP of RM93.7m (-3%), excluding the impairment loss on: (i) goodwill (RM145.6m), (ii) a joint-venture (RM31.3m), and (iii) on property, plant and equipment (RM65.9m) beat both expectations by 20% of full-year estimates. A 2nd Interim DPS of 1.5 sen was declared, bringing FY17 DPS to 3.0 sen, below expectation. Currently, goodwill only left with RM1.1m which indicates that next quarter would be less impairment on goodwill.

YoY, FY17 revenue increased by 3.7% due to higher sales in the Motor segment (+2.3%) mainly on the premium vehicles segment (Volvo XC90), and supported by the affordable value segment, Perodua. Meanwhile, auto parts segment sales increased by 7.1% driven by higher production volume in both tyre assembly and wheel manufacturing plants. Correspondingly, excluding impairment, FY17 PBT increased 13.7% mainly on higher contribution from JV, Autoliv Hirotako (>100%) on higher production volume, and higher Motor segment PBT (+8.8%) on higher sales in premium car segment. Whereas, auto parts segment losses widened (to LBT of RM49.6m from LBT of RM26.9m) on sub-optimal production levels at the alloy wheel plant, and further hampered by lower earnings contribution from Associates (-14.0%) due to constrains in margins.

QoQ, 4Q17 revenue declined by 4.9% due to the weaker performance of Motor segment (-7.2%) with the temporary shortage of outgoing Perodua Myvi stocks ahead of the launch of all-new third-generation Perodua Myvi in mid-November. However, the negative impact was cushioned by Auto Parts segment (+17.8%) mainly due to improved production volume from its alloy wheel plant and better pricing strategy from the tyre assembly line. Correspondingly, excluding impairment, 4Q17 PBT increased 242.0% mainly on higher contribution from the JV, Autoliv Hirotako (>100%) and Associates (+57.4%) from the stronger MYR. Whereas, auto parts segment losses widened (to LBT of RM30.4m from LBT of RM8.4m) due to higher raw materials costs and Motor segment fell into losses (to LBT of RM5.2m from PBT of RM7.2m) from the lower revenue.

Outlook. Perodua surpassed its sales target for 2017 to 204.9k units (target at 202k units), and subsequently aiming higher for 2018 at 209k units with expected volume boost from the all-new Perodua Myvi. The Motor Trading Division will benefit from the strong market reception of the Perodua affordable variants and stronger sales from Volvo premium segment. The Auto parts manufacturing division is estimated to break even in FY18 with its alloy wheels plant expected to produce 50% of the maximum capacity (maximum capacity at 750k units).

FY18E CNP increased by 19.0%. We increased our FY18E CNP by 19.0% and introduce our FY19E CNP at RM113.2m as we impute higher contribution from Joint Venture, Autoliv Hirotako and higher car sales volume target for associates, Perodua.

Upgrade from MARKET PRFORM to OUTPERFORM. We upgrade MBMR from MP to OP with a higher TP of RM2.85 based on 11x FY18E PER which at its 5-year mean Fwd. PER (previously TP is RM2.20 based on 10.0x FY18E EPS, implying -1.0SD). The stock is trading at an undemanding 8.8x FY18E PER compared to 5-year forward average of 11x. We like MBMR for; (i) its deep value stake in 23.6%-owned Perodua (based on our FY18 profit forecast and attached a 10x PER value, MBM’s stake at c.RM1.1b which is 23% higher than MBMR current market capitalisation), (ii) expected strong turnaround in the alloy-wheel division segment underpinned by the all-new MyVi, and (iii) a stronger MYR. Risks to our call include: (i) changes in car sales volume, (ii) unfavourable changes in forex, and (iii) changes in associates’ contribution.

Source: Kenanga Research - 23 Feb 2018