INVESTMENT HIGHLIGHT

• Reported to be looking to exit alloy wheel business

• May eliminate ~RM30m annual losses, improve group earnings by 18%

• Took heavy impairments on alloy wheel plant in FY16/17

• Re-affirm BUY at unchanged TP of RM3.80

Looking to dispose alloy wheel plant. It was reported in The Edge Weekly that MBM is looking to sell off its loss making alloy wheel manufacturing plant under wholly-owned OMI Alloy (OMIA). OMIA has been loss making since it began operations in FY12. The bulk of OMIA’s volume is currently generated from supplies to Perodua Bezza, Axia, MyVi and the upcoming Aru, with some being exported for the replacement market overseas. It is unclear if the plan is to dispose of the asset on a piecemeal basis or whether it involves the sale of OMIA as a whole. No timeline was indicated for the disposal of OMIA’s plant.

JV with Citic Dicastal fell through. OMIA’s previously planned tie-up with China’s Citic Dicastal has apparently fallen through as Citic was reportedly not keen to proceed with the partnership. The JV was meant to add indicative 20K-25K monthly volumes for OMIA via a contract manufacturing arrangement.

Eliminates the drag from OMIA. OMIA registered a net loss of RM38m in FY16 on the back of just RM26m revenue. Though there were increased volumes from Perodua over the years, this was insufficient to turn around OMIA. Revenues increased further to RM34m in FY17 (See Exhibit 1) but OMIA remained in the red, registering core net loss of RM29m (excluding the RM62m impairment). Positively, elimination of the alloy wheel plant operations will eliminate around RM30m in annual losses from OMIA, which would improve MBM group earnings by some 18% (based on our existing FY19F). Excluding OMIA, MBM’s parts manufacturing division still houses its steel wheel manufacturing, wheel and tyre assembly and Hirotako’s safety system and acoustic parts manufacturing units.

Some impairments have been taken. MBM has already taken a total RM62m impairment on its alloy wheel plant in FY17 and FY16, relative to its initial investment of RM103m. OMIA as a company entails negative shareholders fund of RM179m as at end-FY17 (inclusive of the RM62m impairment taken) against total liabilities of RM224m and total asset of RM45m. The land which OMIA’s plant sits on (measuring 79,920sqm, located in Serendah) carried a book value of RM31m at endFY17.

Source: MIDF Research - 22 Jan 2019