MBMR’s 9MFY23 results met our forecast but beat market expectation. Its 9MFY23 core net profit soared 24% driven largely by a production volume surge at 23%-owned Perodua vehicle maker Perusahaan Otomobil Kedua Sdn Bhd. MBMR will continue ride on Perodua vehicles, both in terms of production and distribution. We maintain our forecasts, TP of RM4.85 and OUTPERFORM call.

MBMR’s 9MFY23 results met our expectation at 78% of full-year forecast, but beat market expectations at 81% of the full-year consensus estimate. It declared a second interim NDPS of 6.0 sen and a special NDPS of 7.0 sen (ex-date: 8 Dec; payment date: 22 Dec 2023) in 3QFY23 (vs. none in 3QFY22). Its 9MFY23 cumulative NDPS of 39.0 sen (9MFY22 at 16.0 sen) is on track to meet our FY23F full-year forecast of 48.0 sen.

YoY, MBMR’s 9MFY23 revenue rose 4% driven by: (i) strong sales from vehicle distribution (+4%) due to robust demand for Perodua, Volvo and Volkswagen vehicles, as well as Daihatsu commercial vehicles on the introduction of new models, and (ii) a marginal top line increase at its auto parts manufacturing division. Its core net profit surged 24% driven largely by a higher share of profit from associates (+20%) driven by strong a sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (+19% to 233,227 units).

QoQ, MBMR’s 3QFY23 revenue surged 15% on full utilisation of production capacity at its auto parts plant to cope with strong demand coupled with the absence of long festive holidays. Its core net profit soared by a steeper 45% driven by a higher share of profit from associates (+54%) on a strong sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (+34% to 88,537 units).

Forecasts. Maintained.

We also maintain our TP of RM4.85 based on PER of 7x 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 155k units (almost half of its CY23 target sales of 325k units), (ii) being a good proxy to the massmarket Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia, as well as its 23% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 11%. Maintain OUTPERFORM.

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

Source: Kenanga Research - 27 Nov 2023