MBMR’s 1HFY23 results met expectations. We are unperturbed by its weaker 2Q sequential performance which stemmed from shorter working days and plant maintenance during the festive month. It surprised the market with a generous 20.0 sen special dividend. We maintain our forecasts, TP of RM4.70 and OUTPERFORM call.

MBMR’s 1HFY23 results met expectations at 52% of both our full-year forecast and consensus. A first interim dividend of 6.0 sen, and special dividend of 20.0 sen was declared for the quarter (compared to 1HFY22 at 16.0 sen), already meeting our full-year dividend expectation of 26.0 sen. Hence, we revised our full-year dividend target to 46.0 sen.

YoY, MBMR’s 1HFY23 revenue rose 6% driven by: (i) strong sales from vehicle distribution (+6%) due to robust demand for Perodua, Volvo and Volkswagen vehicles, as well as Daihatsu commercial vehicles on new model launches, and (ii) equally strong sales recorded by its auto parts manufacturing division (+5%). The share of profit from associates rose 8% driven by strong sales volume at Perusahaan Otomobil Kedua Sdn Bhd (+14% to 144,690 units). Overall, core net profit rose by 24%.

QoQ, MBMR’s 2QFY23 revenue decreased by 3% due to shorter working months on the back of consecutive public holidays in April and June 2023. Concurrently, the share of profit from associates plunged 34% as Perusahaan Otomobil Kedua Sdn Bhd closed a week for each Eid-ul public holidays for schedule maintenance (-16% to 66,126 units). Consequentially, core net profit plunged 35%.

Forecasts. Maintained.

We also maintain our TP of RM4.70 based on PER of 8x on FY24F 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).

We continue to like MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 170k 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. The stock also offers an attractive dividend yield of >7%. 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 - 24 Aug 2023