1QFY22 core PATAMI of RM49.6m (+5%) came in within both our/consensus expectation at 25% each of full-year estimates. Perodua continued to record stronger sales with back-logged booking of more than 100k units. Maintain OP with a higher Target Price of RM4.10 (from RM3.50) based on 7x PER on roll-over FY23E EPS (from FY22E). The stock offers dividend yield of 6.3%.

1QFY22 within expectations. 1QFY22 core PATAMI of RM49.6m (+5%) came in within both our/consensus expectation at 25% each of full-year estimates. No dividend for the quarter, as expected.

YoY, 1QFY22 core PATAMI rose 5%, excluding one-off disposal gain of RM35.6m (Alloy wheels segment land & factory building), concurrent with stronger sales (+14%) coming mainly from Motor Trading Division and Associates given the further easing of movement restrictions and improved operating conditions. Motor Vehicles Trading recorded higher sales (+15%) and more than doubled its profit from higher demand for Perodua, Volvo and Volkswagen vehicles, as well as the commercial vehicles Daihatsu Granmax although sales volume is still affected by some supply shortages especially for Perodua. Its associates’ contribution recorded strong sales (+18%) with Perodua driving the improved sales at 61,624 units (+6%). On the other hand, its Auto Parts Manufacturing recoded better sales (+9%) in tandem with stronger unit sales as above, but the Division's profitability were slightly affected by rising production costs.

QoQ, 1QFY22 earnings plunged 55% on seasonally weaker sales (- 15%) while some carmakers' productions were also affected, by among others, semiconductor chips shortages and logistic issues.

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. The group is cautiously optimistic on CY22 prospects with the continued strong demand for vehicles supported by favourable interest rates, continuation of sales tax exemption until 30 June 2022, and introduction of new models including electric vehicles (EV) at more competitive prices.

Maintain OUTPERFORM with a higher Target Price of RM4.10 (from RM3.50) based on 7x PER on roll-over FY23E EPS (from FY22E EPS and at -1.0 SD of 5-year forward historical mean PER). The stock offers dividend yield of 6.3%.

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

Source: Kenanga Research - 26 May 2022