Kenanga Research & Investment

MBM Resources - Riding on Perodua Powerhouse

Publish date: Wed, 29 May 2024, 10:47 AM

MBMR is optimistic of another record year for Perodua vehicle sales, topping 330k units sold last year. Rising acceptance by local buyers of China-brand vehicles augurs well for its dealership of Jaecoo brand vehicles. We maintain our forecasts, TP of RM5.80 and OUTPERFORM call. The stock offers attractive dividend yield of about 8%.

We came away from MBMR’s 1QFY24 results briefing yesterday feeling upbeat. The key takeaways are as follows:

1. MBMR echoed Perodua guidance for 2024 vehicle sales of 330k units (matching that of 2023) and vehicle production of 334k units. It believes the 2024 sales target could even be exceeded based on strong demand for affordably-priced vehicles currently. Perodua has the highest localisation rate of 95% in the automotive industry. It is currently running at maximum capacity with minimal supply-chain disruptions.

Plants of Perodua Manufacturing (PMSB) and Perodua Global Manufacturing (PGMSB) have a combined capacity of 320,000 units.Currently operating in two shifts, there are plans to boost production by lifting productivity and increasing overtime. We are keeping our Perodua vehicle yearly sales assumption of 340k units in both FY24 and FY25.

2. MBMR has recently entered into a dealership agreement with Jaecoo, a fast-growing China car brand focusing on premium SUVs. It expects to open its first 1S outlet in Jun 2024 at Menara MBMR, KL (capex below RM1m), followed by a 4S outlet in Segambut, KL in 2025 (capex around RM10m). MBMR will distribute Jaecoo J7 (opened for booking), J6 EV (from 2024 or 2025), Jaecoo J5 hybrid and EV models (2025), Jaecoo J9 in EV and PHEV forms (from 2025 or 2026). It hopes to sell 10k unit during the first year (comparable to sister brand Chery’s record).

3. It guided for stronger operating results during the remaining quarters of the year driven by full production capacity utilisation, lower cost for auto parts and maiden contribution from Jaecoo brand vehicles which we understand fetch higher distribution margins vs.Volvo and Volkswagen brands.

Forecasts. Maintained.

Valuation. We also maintain our TP of RM5.80 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).

Investment case. We continue to like MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of over 100k units (almost half of its CY24 target sales of 340k units), (ii) 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 23% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 8%. 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 - 29 May 2024

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