INVESTMENT HIGHLIGHT

• FY17 core earnings ahead of expectations

• Took heavy impairments for alloy wheel plant and Hirotako

• Forecasts under review with upward bias

• Maintain BUY at unchanged TP of RM2.45

Earnings ahead of expectations MBM’s core net profit for FY17 was ahead of both our and consensus expectations. The group reported core net profit of RM30m for its 4Q17, excluding several large one-offs: (1) RM177m impairment of goodwill and JV investment in Hirotako (2) RM62m impairment of assets related to its alloy wheel plant. FY17F core earnings stood at RM86m accounting for 124% of our forecast and 109% of consensus.

Core earnings improvements. MBM’s 4Q17 core earnings of RM30m was up by a whopping 42%qoq as earnings from associates (comprising 22.5% stake in Perodua and 42% in Hino) improved 57%qoq. The new Myvi was launched in mid-November and the quarter only captured partial contribution. On top of this core pretax loss for the auto parts unit also narrowed to just RM3.5m from RM8.4m in 3Q17 and RM12m in 4Q16, while JV earnings from Hirotako-Autoliv registered a 38%qoq increase possibly due to initial supplies to the new Myvi. Bookings (since launch) for the new Myvi has been reported at 36K with >80% of bookings going towards the higher variants.

Perodua dealerships took a hit. On MBM’s dealerships, the Perodua dealership unit under DMMS (DMM Sales Sdn Bhd) - sales volume down 15%qoq - suffered a temporary setback from supply shortage ahead of launch of the new Myvi model. DMMS is the largest Perodua delaer with ~10% share of Perodua TIV. Positively, Federal Auto saw a 7%qoq rise in volumes driven by VW models while DMSB (Daihatsu Malaysia Sdn Bhd) saw a 12%qoq rise from higher Daihatsu Commercial Vehicle sales.

Recommendation. Our forecast is under review with upside bias pending a briefing this morning. The decision to take a huge impairment on assets at the alloy wheel plant was a surprise, but we note that this came ahead of a recent announcement to take full control of OMI (unit housing loss making alloy wheel unit and steel wheel operations). This could also mean lower depreciation cost going forward and possible acceleration in turnaround of the units. Maintain BUY at unchanged TP of RM2.45.

Source: MIDF Research - 23 Feb 2018