FY19 core PATAMI of RM192.0m (1% YoY), came in within expectations at 97%/95% of our/consensus estimates. We expect better sales in 1QFY20 from the new launching of its popular face-lifted Perodua Bezza (launched in Jan 2020). Maintain OUTPERFORM with unchanged TP of RM4.75, based on PER of 9x FY20E EPS (at 5-year Fwd. historical mean PER).

FY19 within expectations. FY19 core PATAMI of RM192.0m (1% YoY), came in within expectations at 97%/95% of our/consensus estimates. Interim DPS of 7.0 sen was declared for the quarter, bringing FY19 DPS to 13.0 sen (FY18: 6.0 sen), as expected. Note that the FY19 core PATAMI was adjusted to exclude: (i) RM24.8m gain on disposal of 22%-stake in associate, Hino Motors (holdings reduced from 42% to 20%), and (ii) gain on disposal of assets classified as held for sales of RM11.9m.

YoY, FY19 core PATAMI marginally increased 1% from: (i) higher associates’ contribution (+3%), and (ii) improved motor vehicles trading division’s performance (+26% skewed up by gain from Hino Motors stake disposal), as both benefited from Perodua’s sales volume of 240,284 units (+6%) buoyed by the all-new Myvi, with further boost from the all-new Perodua ARUZ, which more than offset the lower auto parts segment (-11%) mainly due to the lower steel wheels volume and additional provisions made at year-end. Note that, the top three selling models were Perodua’s Myvi, Axia and Bezza. 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 enjoyed during the GST tax holiday in 2018.

QoQ, 4QFY19 core PATAMI plunged 31% largely from lower associates’ contribution, namely Perodua (-25%) despite recording higher unit sales of 61,530 (+8% QoQ) mainly due to higher discounts given at year-end to phase out of older models of Perodua Bezza before launching the face-lifted Perodua Bezza in January 2020.

Outlook. We like MBMR for its: (i) its deep value stake in 22.58%- owned Perodua, and (ii) dual-income streams as the largest Perodua dealer and as parts supplier for most of the popular marques. Perodua continued to record stronger sales, with a market share of 41%, supported by higher delivery of all-new Myvi and all-new Perodua ARUZ (30,115 units delivered). Perodua is cautious on 2020 with a flat growth target at 240k unit sales due to challenging factors such as intense competition, weakening consumer sentiment, stringent hire purchase requirement as well as global economic uncertainties.

Maintain OUTPERFORM with unchanged TP of RM4.75, based on PER of 9x on FY20E EPS (at 5-year Fwd. historical mean PER).

Risks to our call include: (i) a sharp downturn in the economy leading to lower-than-expected car sales volume, and (ii) lower-than-expected associates’ contribution.

Source: Kenanga Research - 27 Feb 2020