MBMR has continued to record overwhelming bookings for its Perodua line of vehicles especially for the newest models of Perodua Alza with the waiting period now extending beyond one year, indicating strong new bookings despite the absence of any tax waiver. MBMR is optimistic that Perodua sales in 2022 would hit new record at 270k-290k units, surpassing Perusahaan Otomobil Kedua Sdn Bhd’s official target of 247,800 units. We maintain our forecasts, TP of RM4.45 and OUTPERFORM call. The stock offers an attractive dividend yield of >6%.

We attended MBMR’s 3QFY22 results briefing last Friday and the key takeaways are as follows:

1. MBMR guided for Perodua 2022 sales of 270k-290k units which translate to a 42% to 52% YoY growth, surpassing Perusahaan Otomobil Kedua Sdn Bhd’s official target of 247,800 units based on the current production level trend. Perodua has the highest localisation rate of 95% in the automotive industry and production has been running smoothly at 95% of plant monthly capacity, with minimal interruption from chip shortages. We are keeping our Perodua TIV assumptions of 270,000 units and 280,000 units for FY22 and FY23, respectively.

2. MBMR updated that its order backlog remains strong at 200k units, driven by monthly new bookings that have returned to the prepandemic level of 25k to 35k, despite the absence of tax waiver. The new bookings are ordered from the highest to the lowest are as follows: Bezza, Alza, Axia, Myvi, Ativa and Aruz. Perodua Alza’s booking backlog now stands at 65k and the waiting period is the longest at more than one year based on a production rate of 4k units per month at the maximum due to chip shortages.

3. MBMR shared that Perusahaan Otomobil Kedua Sdn Bhd is conducting a feasibility study on potential commercial production of hybrid and electric vehicles based on potential customer reception. A Perodua Ativa hybrid subscription plan (RM500/month for five years) launched in September 2022 comprising 300 units of CBU Rocky hybrid was fully taken up within the first month.

We like MBMR for its: (i) strategy to focus on affordable-price range Perodua vehicles amidst the high inflationary environment with more than 200k 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 fronts for Perodua through its 22.58% stake and role as the largest Perodua dealership.

We maintain our TP of RM4.45 based on 7x FY23F EPS which is at a discount to the auto sector’s average forward PER of 11x given its smaller scale and business model which is skewed toward auto dealerships compared to other players that are more involved in auto manufacturing. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). The stock also offers an attractive dividend yield of >6%. Maintain OUTPERFORM.

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 - 29 Nov 2022