MBMR’s 1HFY22 results met expectations. It chalked up strong sales (as the economy reopened) and margins (due to high-margin new models and better pricing power for its auto parts amidst supply constraints in the industry). Associate Perusahaan Otomobil Kedua Sdn Bhd also turned in excellent results thanks to strong car sales. Maintain OUTPERFORM with a TP of RM4.10. The stock offers dividend yield of >6%.

Its 1HFY22 results met expectations with a core profit of RM106.5m (excluding RM44.8m gain from the disposal of its alloy wheels business), making up 54%/51% of house/street’s FY22 forecasts. It declared first interim NDPS of 6.0 sen and special NDPS of 10.0 sen (ex-date: 8 Sep; payment date: 30 Sep) in 2QFY22 vs. 5.0 sen paid in 2QFY21.

1HFY22 turnover rose 40% YoY driven by: (i) strong sales from vehicle distribution (+41%) due to robust demand for Perodua, Volvo and Volkswagen vehicles, as well as Daihatsu commercial vehicles as the economy reopened, and (ii) equally strong sales recorded by its auto parts manufacturing (+38%) division. The share of profit from associates rose sharply (+86%) driven by strong car sales at Perusahaan Otomobil Kedua Sdn Bhd (+31% to 127,343 units). Core PATAMI rose by a larger 67% due to better margins at both vehicle distribution (due to high-margin new models, i.e. Perodua Alza and Perodua Ativa) as well as auto parts manufacturing (due to better pricing power amidst supply constraints in the industry).

Outlook. We like MBMR for its: (i) strategy to focus on affordablepriced range Perodua vehicles amidst the high inflationary environment with more than 400k units of back-logged bookings, (ii) highly sought after Tier-1 OEM auto parts manufacturing line boosted by the all-new models (i.e. all-new Perodua Alza, and Proton X50), and (iii) position in capitalising on both front for Perodua through its 22.58% stake and role as the largest Perodua dealership. Perodua recently launched the allnew Alza to replace its older generation model, already receiving overwhelmed backlog of 39k units. MBMR which also deals in the Volvo marque offers Volvo XC40 Recharge opening a path to the exciting taxfree BEV market.

Forecasts. Maintained.

Maintain OUTPERFORM with a Target Price of RM4.10 based on Automotive PER of 7x on FY23F EPS which is at the lower range of our coverages trailing PER of 7x to 15x given its smaller scale and business model which is skewed toward auto dealerships compared to other players which are more involved in auto manufacturing. There is no adjustment to our TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 4). The stock also offers an attractive dividend yield of >6%.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, (ii) persistent disruptions (including chip shortages) in the global automotive supply chain, and (iii) persistently high cost for materials in auto parts manufacturing.

Source: Kenanga Research - 26 Aug 2022