MBMR’s FY22 results disappointed due to a weaker-than-expected showing from manufacturing associate Perusahaan Otomobil Kedua Sdn Bhd on higher input cost despite record sales volume. However, MBMR surprised with a special dividend of 15.0 sen. We cut our FY23F net profit by 4%, reduce our TP by the same percentage to RM4.60 (from RM4.80) but maintain our OUTPERFORM call.

MBMR’s FY22 core net profit missed our forecast by 7% but met the consensus estimate. The key variance against our forecast came from lower-than-expected performance at manufacturing associate Perusahaan Otomobil Kedua Sdn Bhd on higher input cost despite record 4Q sales, ending the year similarly with record annual sales of 282k units (+49%).

It declared second interim NDPS of 6.0 sen and special NDPS of 15.0 sen (ex-date: 6 Mar; payment date: 7 Mar 2023), in 4QFY22 vs. 15.0 sen paid in 4QFY21, bringing FY22 NDPS to 37.0 sen (FY21: 26.0 sen), above expectation.

YoY, FY22 revenue rose 51% driven by: (i) strong sales from vehicle distribution (+50%) 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 division (+53%). The share of profit from associates rose 33% driven by strong sales volume at Perusahaan Otomobil Kedua Sdn Bhd (+49% to 282,019 units). Overall, core net profit (excluding one-off property disposal of RM44.8m) rose by 33%.

QoQ, 4QFY22 revenue rose 5% in tandem with the increase in production level on the easing of supply chain disruption. EBIT was lower by 5% affected by the rising operating costs (i.e. higher minimum wages of RM1,500 and higher staff performance rewards). Whereas, the share of profit from associates rose only 4% due to rising costs of production despite Perusahaan Otomobil Kedua Sdn Bhd recording its highest quarterly unit sales of 85,665 units (+24%). Consequentially, core net profit was lower by 5%.

Although Perodua has been steadfast in keeping the current generation vehicles’ prices unchanged, the all-new Perodua Axia was launched at higher prices (+13%). Perodua plans to release two more face-lifted models for this year at higher prices that could result in improved margins for Perodua.

Forecasts. We cut our FY23F net profit by 4%, introduce FY24F net profit of RM264.5m (+3%) and reduce our TP by 4% to RM4.60 from RM4.80. Our TP is 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 which are more into 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.

We like MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 220k units, (ii) it being a good proxy to the mass-market Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia as well as its 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its Tier-1 OEM auto parts manufacturing certification.

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 - 21 Feb 2023