9M18 core PATAMI of RM105.5m (+97%) came in within our expectation at 79%, but above consensus’ at 86%, of fullyear estimates. All-new Perodua Myvi still maintains an impressive booking at 120k units, with 75k delivered since launching, despite short-term supply disruption in August and September 2018, which had been rectified in October 2018 (Perodua’s Oct 2018 TIV surged 106% MoM). Reiterate OP with unchanged TP of RM3.60.

9M18 within our expectation. 9M18 core PATAMI of RM105.5m (+97%) came in within our expectation at 79%, but above consensus expectation at 86%, of full-year estimates. No dividend was declared for the quarter as expected. The group typically paid dividends in 2Q and 4Q.

YoY, 9M18 core PATAMI surged 97% boosted by higher associates contribution (+58%) and higher motor vehicles trading division PBT (+15%), as both benefited from impressive Perodua sales volume of 168,203 units (+11%) aided by strong demand for the all-new Perodua Myvi (currently, booking at 120k units, with 75k delivered since launches). Furthermore, auto parts segment sales (+11%) showed improved production efficiency, with higher demand for alloy wheels from both OEM customer and exports, as well as higher revenue from its modular assembly plant, resulting in lower segment losses before tax of RM9.1m compared to losses before tax of RM19.2m in 9M17.

QoQ, 3Q18 core PATAMI increased by 10% mainly on: (i) lower effective tax rate of 4.8% (2Q18: 6.3%), and (ii) lower losses in auto parts segments with losses before tax of RM1.3m compared to losses before tax of RM4.0m in 2Q18 as a result of continuous improvements in production efficiency at the alloy wheel plant and the modular assembly plant. This was despite marginal contribution from both associates and Motor Vehicles segment as both were affected by the supply disruption of the all-new Perodua MyVi in August and September 2018 in which Perodua only registered total sales of 51,505 units (-17% QoQ).

Outlook. Despite short-term supply disruption for the all-new Perodua Myvi in August and September 2018, which had been rectified in October 2018 (Perodua Oct’18 TIV surged 106% MoM), all-new Perodua Myvi still maintains an impressive booking at 120k units, with 75k delivered since launches, and we expect the booking will continue to be translated into sales. Moving forward, the Motor Trading Division will benefit from stronger margin sales from the Volvo premium segment and the strong market reception of the Perodua affordable variants. Perodua is expected to launch the all-new Perodua SUV (D38L) in the 1Q19. Note that, the all- new Perodua SUV (D38L), is currently being showcased in KLIMS 2018, but under closed-boxed cover to maintain exclusivity before the official launch.

We reiterate our OUTPERFORM call with an unchanged TP of RM3.60 based on 10.5x FY19E EPS which is at its 5-year forward historical mean PER. The stock is trading at an undemanding 5.5x FY18E PER compared with average net profit growth of 15% per annum over the next two years.

We like MBMR for: (i) its deep value stake in 22.58%-owned Perodua (based on our FY18E profit and attached 12x PER value, MBMR’s stake at c.RM1.4b), and (ii) expected strong turn-around in the alloy-wheel division segment underpinned by the all-new MyVi and expected launch of the all-new Perodua SUV (D38L).

Risks to our call include: (i) lower-than-expected car sales volume, and (ii) lower-than-expected associates’ contribution.

Source: Kenanga Research - 23 Nov 2018