KEY INVESTMENT HIGHLIGHTS

• FY19 earnings within expectations

• 4Q19 core earnings eased against an exceptionally high base in 4Q18

• Interim dividends more than doubled, final dividends could be in the offing on the back of solid 16% FCF yield

• Debt levels pared down further to just RM36m, net cash now accounts for some 15% of market cap

• Reaffirm BUY on MBM at unchanged TP of RM4.55, solid 6% yields on the back of just 7x FY20F PER

FY19 earnings met expectations…after several upgrades. MBM reported core net profit of RM51m for its 4Q19, bringing FY19 core earnings to RM193m, after normalizing for: (1) RM25m gain on disposal of a 22% stake in Hino (2) RM11.9m gain on disposal of properties (3) RM9.5m write-off of one off cost related to the motor division. The core FY19 earnings were in-line, accounting for 102% of both our and consensus estimates, though this should be taken in context with the numerous consensus upgrades throughout FY19.

Dividends. An interim dividend of 7sen/share was declared bringing FY19 interim dividends to 13sen/share, some 117% higher compared to FY18 interim dividends. In FY18, MBM also proposed a final dividend of 6sen/share (in Apr19), which brought FY18 total dividends to 12sen/share. A final dividend for FY19 has yet to be announced but we believe is very likely. MBM’s FY19 entailed an FCF yield of 16% while the interim dividends so far represent only a 3.3% yield and just a 23% payout relative to reported EPS. As such, we stick to our forecast of FY19 total dividends of 23sen/share (45% payout) which translates to a generous yield of 6%. Earlier in FY19, MBM adopted a new dividend policy of a minimum 60% payout at the holding company level (estimated 40%-45% payout at group level).

Exceptionally high base in 4Q18. Group core net profit declined 23%yoy to RM51m in 4Q19. This was mainly due to an exceptionally strong base in 4Q18 which was driven by fulfilment of back orders after the production disruption for the MyVi production line was resolved in 3Q18. For the auto parts unit (under JCE), the strong 4Q18 base was also driven by fulfilment of backorders during the GST-free period.

Solid balance sheet. Gross debt levels reduced further to RM36m in 4Q19 (from RM148m in 1Q19) as the group pared down debt related to OMIA utilizing partly, it’s RM74m proceeds from sale of a 22% stake in Hino in 2Q19. MBM’s net cash position is underpinned. Group net cash of RM228m as of end-4Q19 accounts for some 15% of MBM’s market cap.

Source: MIDF Research - 27 Feb 2020