1HFY20 core PATAMI of RM22.3m (-79%), came in below both our/consensus expectation at 17% of full-year estimate due to weaker-than-expected margin during MCO period to sustain idle operation. As such, we cut FY20E CNP by 10%. We expect pent-up demand sales during the SST-exempted period, but overall growth could be capped by higher production costs to deliver back-logged bookings (i.e weakening MYR against USD, extra work hours, and extra auto parts outsourcing costs), which could further be affected by bottlenecks in auto parts supply chain during this global pandemic. Maintain UP with a TP of RM2.80.

1HFY20 below expectations. 1HFY20 core PATAMI of RM22.3m (- 79%), came in below both our/consensus expectation at 17% of full year estimate due to weaker-than-expected margin during MCO period with the higher-than-expected operating expenses to sustain idle operation. Interim DPS of 5.0sen (FY19: 6.0sen) was declared, below expectation.

YoY, 1HFY20 core PATAMI plunged 79% 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 74,170 unit (-39%), which in turn affected MBMR’s associates contribution (-75%), Motor Vehicles trading (-60%), while Auto parts manufacturing turned into losses of RM0.5m compared to a profit of RM6.4m for 1HFY19. There were some reliefs on discounting activities for the period which in turn rendered Motor Vehicle still profitable. Note that, the top three selling models were still Perodua’s Myvi, Axia and especially the face-lifted Bezza.

QoQ, 2QFY20 plunged into the red with core losses of RM5.1m compared to core PATAMI of RM27.4m in 1QFY20 from the closures of business operations during the MCO period which lasted till 4th May, when the conditional MCO was introduced. Perodua’s sales volume recorded the worst ever quarterly sales at 29,193 units (-21% QoQ, - 52% YoY).

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 is supported by higher delivery of all-new Myvi, all-new Perodua ARUZ, and face-lifted Bezza. Perodua is cautious for the rest of 2020 due to challenging factors such as intense competition, weakening consumer sentiment, stringent hire purchase requirement as well as global economic uncertainties which prompted them to cut 2020 sales target to 210k from 240k. We maintain our 2020 sales forecast of 180k unit for now given the expected delay in launching of highly anticipated all-new Perodua 5-seater SUV to next year, and further affected by bottlenecks in auto parts supply chain during this global pandemic.

Cut FY20E CNP by 10%. We cut FY20E CNP by 10% to reflect the weaker-than-expected margin. No changes to FY21E CNP.

Maintain UNDERPERFORM with unchanged TP of RM2.80, based on 7x FY21 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 - 21 Aug 2020