FY18 CNP of RM165.5m (+59%) came in above both our and consensus expectations at 120% of full-year estimates, due to higher-than-expected associates’ contribution. Perodua’s sales volume of 227,243 units (+11%), surpassed management's 2018 target of 209,000 units, aided by strong demand for the all-new Perodua Myvi. We upgrade our FY19E CNP by 18%, to reflect the stronger associates’ contribution, and increased our TP to RM3.45. Reiterate OP.

FY18 above expectations. FY18 CNP of RM165.5m (+59%) came in above both our and consensus expectations at 120% of full-year estimates, due to higher-than-expected associates’ contribution. A final DPS of 3.0 sen was declared for the quarter, bringing FY18 DPS to 6.0 sen (FY17: 3.0 sen), as expected.

YoY, FY18 core PATAMI surged 59% boosted by higher associates’ contribution (+51%) and improved motor vehicles trading division performance, as both benefited from impressive Perodua’s sales volume of 227,243 units (+11% YoY), surpassing management's target of 209,000 units, aided by strong demand for the all-new Perodua Myvi (currently, booking at 150k units, with 110k delivered since launching). Furthermore, auto parts segment sales (+6%) 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 loss before tax of RM12.3m, from segment loss before tax of RM49.6m in FY17.

QoQ, 4Q18 core PATAMI rose 58% mainly from the higher associates’ contribution (+65%), from the recovery in supply disruption for the all-new Perodua Myvi in August and September 2018, which had been rectified in October 2018. Note that, Perodua 4Q18 unit sales was at 59,040 units (+16%). Furthermore, the group's share of the joint venture's results improved (>100%), and auto parts manufacturing recorded better sales, both attributed to higher production demand from customers to fulfil back orders received in the previous quarters.

Outlook. Despite short-term supply disruption for the all-new Perodua Myvi in August and September 2018, which had been rectified in October 2018, the all-new Perodua Myvi still maintains an impressive booking at 150k units, with 110k delivered since launching, 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 has surpassed its 2018 target and targeting a stronger year in 2019 at 231k (+1.7%), with extra torque from the allnew Perodua ARUZ (current booking at 8k units, c.4k delivered).

Upgrade FY19E CNP by 18%. We increased our FY19E CNP by 18%, to account for the higher-than-expected sales volume from its associates, Perodua, premised on all-new Perodua Myvi and all-new Perodua ARUZ (expected to sell c.2k units/month).

We reiterate our OUTPERFORM call with a higher TP of RM3.45, (from RM2.90) based on unchanged 8x FY19E EPS, which is at -1SD of its 5-year forward historical mean PER. We like MBMR for: (i) its deep value stake in 22.58%-owned Perodua and (ii) dual-income streams as the largest Perodua dealer and from its manufacturing division as a parts supplier for Perodua as well as other popular marques.

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

Source: Kenanga Research - 28 Feb 2019