1HFY21 core PATAMI of RM63.7m (+186%) came in at 39%/34% of our/consensus full-year estimates but we deemed the results broadly within our expectation. With the re-opening of Automotive sector starting 16th August 2021, we expect stronger delivery of back-logged bookings for both Motor Vehicles trading and Auto Parts Manufacturing backed by stronger associates’ contribution especially Perodua. Maintain OUTPERFORM with unchanged TP of RM3.50. The stock offers dividend yield of 4.6%.

1HFY21 within our expectation. 1HFY21 core PATAMI of RM63.7m (+186%) came in at 39%/34% of our/consensus full-year estimates. We deemed the results broadly within our expectation. With the re-opening of Automotive sector starting 16th August 2021, we expect stronger delivery of back-logged bookings for both Motor Vehicles trading and Auto Parts Manufacturing backed by stronger associates’ contribution especially Perodua. First interim dividend of 5.0 sen was declared for the quarter (1HFY20: 5.0sen), as expected.

YoY, 1HFY21 core PATAMI surged 186% from a low base last year due to MCO 1.0, and stronger demand under the sales tax exemption which started in June 2020. Perodua’s sales volume surged to 97,282 units (+31%), which in turn boosted associates’ contribution (+137%). Overall, both segments recorded stronger sales with notable increase in Auto parts manufacturing sales (+85%), from carmakers' higher demand for all products to replenish stocks depleted since last year- end. Concerted efforts and planning at the plants have ensured minimal interruption to production lines despite the ongoing COVID-19 operating environment and global supply chain issues. Note that, the top-three selling models were still Perodua’s Myvi, Axia and the All-New Ativa. Aside from the strong demand in the Perodua Ativa and Volvo XC40 Recharge that was launched last quarter, there was interest in the new Volvo S90 Recharge launched in April 2021 as well. As for commercial segment, demand for the Daihatsu Granmax remained steady coming mainly from the e-commerce logistic industry.

QoQ, 2QFY21 core PATAMI plunged 65% with lower sales (-23%) and associates’ contribution (-71%) especially from 22.58%-owned Perodua following the implementation of National Recovery Plan Phase 1 where sales and production was closed from 1st June 2021 until 16th August 2021, but less severe due to strong sales in April and May 2021 chalking up units sales of 39,381 units (-32%).

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’s market share is supported by higher delivery of all-new Myvi, all-new Perodua ARUZ, and face-lifted Bezza as well as the all-new ATIVA which has garnered better margins compared to the previous models. Perodua is cautiously optimistic on CY21 prospects with tax exemptions and incentives on passenger vehicles helping to sustain volume until the end of the year.

Maintain OUTPERFORM with a TP of RM3.50 based on 9x FY22E EPS (at 5-year forward historical mean PER). The stock offers dividend yield of 4.6%.

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

Source: Kenanga Research - 26 Aug 2021