9MFY21 core PATAMI of RM58.4m (-33%) came in below our/consensus expectation at 36%/39% of full-year estimates on worse-than-expected pandemic-induced lockdown’s impact on its core business and associates, especially Perodua. We trimmed FY21E CNP by 16% but keep FY22E CNP unchanged as we expect Perodua to continue recording sustainable volume and market share especially with the extension of SST-exempted period to June 2022. Note that, Perodua achieved record-breaking sales of 27,858 units in October 2021 showcasing for a better 4Q ahead. Maintain OUTPERFORM with unchanged TP of RM3.50. The stock offers dividend yield of 4.7%.

9MFY21 below expectations. 9MFY21 core PATAMI of RM58.4m (- 33%) came in below our/consensus expectation at 36%/39% of full-year estimates on worse-than-expected pandemic-induced lockdown impact on its core business and associates, especially Perodua. No dividend was declared for the quarter, bringing 9MFY21 DPS to 5.0 sen. (9MFY20: 5.0 sen), as expected.

YoY, 9MFY21 core PATAMI plunged 33%, concurrent with lower sales (-21%). Malaysia was placed under total lockdown (FMCO) from 1st June 2021 which was extended but had subsequently transitioned into various phases of National Recovery Plan (NRP). With the FMCO and NRP, MBMR vehicle showrooms were closed from June to mid-August 2021, and subsequently reopened in stages in conformity with the required vaccination rates of the states where the showrooms are located. Its manufacturing division was also closed during the same period and resumed operation by mid-August 2021. Perodua’s sales volume plunged to 119,085 units (-18%), which in turn decreased associates’ contribution (-37%).

QoQ, 3QFY21 core PATAMI plunged into core losses of RM5.4m, compared to core profit of RM16.7m in 2QFY21. Aside from vehicle showrooms being closed for almost two months, vehicles supply upon reopening were also limited given the various challenges faced by OEMs and suppliers at the production plants. Its workshops were operating with 60% capacity during this period

Outlook. MBMR’s business strategy lies in its: (i) 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 the all-new ATIVA which provide 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.

Trimmed FY21E CNP by 16% on worse-than-expected pandemic-induced lockdown’s impact on its core business and associates, especially Perodua. No changes to FY22E CNP as we expect Perodua to continue recording sustainable volume and market share especially with the extension of SST-exempted period to June 2022.

Maintain OUTPERFORM with unchanged TP of RM3.50 based on 9x FY22E EPS (at 5-year forward historical mean PER). The stock offers dividend yield of 4.7%.

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

Source: Kenanga Research - 25 Nov 2021