INVESTMENT HIGHLIGHT

• 4Q18 results beats estimates

• Strong earnings driven by fulfilment of Perodua back orders, parts manufacturing returned to the black

• Forecasts under review with upward bias pending analyst briefing.

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

Results beat estimates. MBM’s 4Q18 results beat our aboveconsensus estimates. The group reported core net profit of RM65m for its 4Q18 (excluding a RM2m impairment and a RM2.7m provision for one-off cost related to its alloy wheel plant), which brought FY18 core earnings to RM168m. This accounted for 114% and 125% of our and consensus’ estimates respectively.

Fulfilled back orders. Associate earnings were up some 65%qoq (+73%yoy) driven mainly by the fulfilment of back orders for the MyVi given the production disruption in 3Q18. Perodua invoiced volumes were up 23%qoq and 30%yoy. This is essentially tax holiday driven volumes being delayed into the 4Q18. Meanwhile, 42%-owned Hino saw a 24%qoq contraction in volumes as sales normalised after strong 3Q18 performance.

Supply shortage. MBM’s dealership division registered a 19%qoq revenue expansion and a 27%qoqo pre-tax earnings expansion as Perodua dealerships under DMMS benefitted from the fulfilment of back orders for the MyVi. DMMS dealership sales volume increased 24%qoq (+14%yoy). DMMS accounts for circa 10% of Perodua sales and is the largest Perodua dealership in the country.

Parts manufacturing turned to the black. Excluding the RM2m impairment and RM2.7m provision for OMI Alloy (which management is looking to sell off) the parts manufacturing division would have turned in a pretax profit of RM1.4m for 4Q18, against a loss of RM1.3m in 3Q18. The improvement was a result of increased production efficiency at both the module assembly and alloy wheel plant.

Earnings adjustments. Our forecasts are under review with upward bias pending an analyst briefing this Friday. Although FY18 was exceptionally strong given the tax holiday, the Aruz (launched Jan19) is likely to drive Perodua’s 2019 TIV to a new record. As it is, our FY19F is already 13% above consensus.

Reaffirm BUY on MBM at unchanged TP of RM3.80/share. MBM remains a cheap proxy to Perodua’s volume expansion and the spillover on its parts manufacturing and Perodua dealership units. Key catalysts: (1) Strong growth in Perodua TIV on the back of the new MyVi and a new SUV to fill up a vacum in its model mix (2) A strong Ringgit against JPY (3) A recovery in industry production driven by new national car launches. Stock trades at a depressed 6x FY19F earnings.

Source: MIDF Research - 28 Feb 2019