MBM Resources Bhd's ("MBMR") growth remains intact with higher sales volume expected from Perodua and potential turnaround of its alloy wheel business. Recommend BUY with target price of RM3.40 based on 1 lx FY19 PER premised on its 5-year average PER. 

MBMR's multi-brand strategy in Motor Trading division includes the distributorship of Daihatsu, Iveco, Hino as well as the operation of over 30 automotive branches under the brand Volvo, Volkswagen, Hino and Perodua. MBMR's strong presence lies on its 20% stake in Perodua which leads the automotive market share at -37%. Driven by top affordable models such as Myvi, Axia and Bezza coupled with the upcoming launch of Perodua SUV (D38L), we expect MBMR's earnings to grow further from higher sales volume. 

Meanwhile, contribution from Auto Parts Manufacturing segment is expected to improve as its alloy wheel unit - OMI Alloy ("OMIA") is on track to break even in FY19. Via the strategic partnership with Citic Dicastal ("CD"), the world's largest alloy wheel maker in 2017, the group can leverage on CD's expertise to increase the operation efficiency. CD will also utilise up to 50% of OMIA's capacity to supply wheels for export markets such as India and Europe. Hence, OMIA is looking to ramp up its production capacity to lm units p.a in 2019 from the current 750,000 units p.a. 

Despite recorded a loss in FY2017, MBMR's 1H18 net profit has surpassed the net profit in FY2016 reinforcing better efficiency control by management. Currently trading at undemanding 6.6x FY19 PER, we believe MBMR's valuation remains attractive on the back of solid contribution from motor trading segment especially from Perodua and potential turnaround from OMIA. 

Source: Rakuten Research - 8 Oct 2018