1QFY20 core PATAMI of RM27.4m (-48% YoY, -31% QoQ), came almost within our expectation at 20%, but below consensus at 15%, of full-year estimate. The MCO which lasted till 4th May 2020 was replaced by the conditional MCO (CMCO) and MBMR had since resumed operations. We expect some pent-up delivery to be recorded in near-term. However, we believe that national marques would fare worse than non-national marques due to the former’s target market of lower to mid-income range which is the most financially distressed segment. Maintain UP with a TP of RM2.40.

1QFY20 within our expectation. 1QFY20 core PATAMI of RM27.4m (- 48% YoY, -31% QoQ), came in closely within our expectation at 20%, but below consensus at 15%, of full-year estimate. No DPS was proposed for the quarter, as expected.

Results’ highlights, 1QFY20 core PATAMI plunged (-48% YoY, -31% QoQ) mainly due to closures of business operations during the MCO period which lasted till 4th May, when the conditional MCO was introduced. Perodua’s sales volume was severely affected, skidding to 44,977 unit (-26% YoY, -27% QoQ), which in turn affected MBMR’s associates contribution (-34% YoY, -30% QoQ), Motor Vehicles trading (-80% YoY), and Auto parts manufacturing (-59% YoY, -60% YoY). There were some reliefs on discounting activities for the quarter which in turn rendered Motor Vehicle still profitable compared to the last quarter. Note that, the top three selling models were still Perodua’s Myvi, Axia and especially the face-lifted Bezza.

Outlook. MBMR’s business strategy lies in: (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 market share of 42% is supported by higher delivery of all-new Myvi, all-new Perodua ARUZ, and face-lifted Bezza. Perodua is cautious on 2020 due to challenging factors such as intense competition, weakening consumer sentiment, stringent hire purchase requirement as well as global economic uncertainties. Nevertheless, with the CMCO in effect and looming economic contraction, Perodua’s sales could be negatively affected and making its sales target very a tall order.

Maintain UNDERPERFORM with unchanged TP of RM2.40, based on 7x FY20E EPS (-1.0 SD of its 5-year forward historical mean PER).

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

Source: Kenanga Research - 22 May 2020