1Q19 core PATAMI of RM38.0m (+16% YoY, -37% QoQ) came in within expectations at 23%/24% of our/consensus full-year estimates. Perodua’s 1Q19 sales of 60,659 units (+9% YoY, +3% QoQ) is on-track to meet year-end target of 231k unit sales buoyed by all-new Myvi (bookings at 160k, with c.140k units delivered), with further boost from the allnew Perodua ARUZ (bookings at 20k units, 9.8k delivered). Reiterate OP with unchanged TP of RM3.45.

1Q19 within expectations. 1Q19 core PATAMI of RM38.0m (+16% YoY, -37% QoQ) came in within expectations at 23%/24% of our/consensus full-year estimates. No dividend was declared for the quarter as expected. MBMR typically pays dividends in 2Q and 4Q.

YoY, 1Q19 core PATAMI surged 16% boosted by higher associates’ contribution (+16%) and improved motor vehicles trading division’s performance (higher segment margin by 2.4ppt to 3.7% from 1.3% in 1Q18), as both benefited from Perodua’s sales volume of 60,659 units (+9%) buoyed by all-new Myvi (bookings at 160k, with c.140k units delivered), with further boost from the all-new Perodua ARUZ (bookings at 20k units, 9.8k delivered). Furthermore, auto parts segment’s sales (+3%) showed improved production efficiency due to sustained production demand from carmakers to fulfil earlier back-orders and to replenish depleted stocks, resulting in lower segment loss before tax of RM0.4m, from segment loss before tax of RM3.8m in 1Q18. Note that, the top three selling models in 1Q19 were Perodua’s Myvi, Axia and Aruz. On the other hand, volume for Volvo also increased with the addition of the XC-40 (CKD) which catered to wider market segment. However, consumer interest for Volkswagen appeared to have tapered down after the high demand during the GST tax holiday in 2018.

QoQ, 1Q19 core PATAMI plunged 37% mainly from the lower associates’ contribution (-34%) and joint-venture companies (-15%) as production demand was slower after the high performance in 2018 as well as due to Perodua’s investment cost on the all-new Perodua ARUZ platform. This was despite higher revenue for both Motor vehicles trading (+7%) and auto parts manufacturing (+10%).

Outlook. 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. Perodua continued to record stronger sales, with a market share of 43%, premised on the higher delivery of all-new Myvi (bookings at 160k, with c.140k units delivered), and with further boost from the all-new Perodua ARUZ (bookings at 20k units, 9.8k delivered). Perodua has surpassed its 2018 target and targeting a stronger year in 2019 at 231k unit sales (+1.7%).

We reiterate our OUTPERFORM call with unchanged TP of RM3.45, based on unchanged 8x FY19E EPS, which is at -1SD of its 5-year forward historical mean PER.

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

Source: Kenanga Research - 24 May 2019