MBM remains in a transitional phase, where investments committed to broadening its business base have yet to bear fruit. Ongoing start-up costs will remain a drag on earnings, while talks with SAIC Motor Corp are still in progress. We see few catalysts to re-rate the stock higher. TP has increased to MYR3.40 (from MYR3.30) after ascribing a higher target P/E of 9x to fully diluted 2014 EPS. No dividend was declared during the quarter.

• Below expectations.MBM’s 3Q13 earnings of MYR35.1m fell 5.5% and 1% q-o-q and y-o-y respectively, bringing 9M13 earnings to MYR105m (-0.9% y-o-y) reaching just 70% of our previous forecast and 69% of consensus estimates. The main culprits were lower-than-expected associate earnings and weaker sales of Daihatsu trucks, and Volvo and Volkswagen vehicles. Earnings continued to be dragged by start-up costs at its new alloy wheel plant, while Hirotako sales improved q-o-q but were flat y-o-y despite total industry production (TIP) rising 3.4% y-o-y during 9M13 – suggesting a proportionately higher dependence on sales to Proton (9M13 TIP: -12.2% y-o-y). EBIT margin for the quarter fell to 2.8% from 3.1% in the preceding quarter.
• Auto trading down.MBM’s total vehicle sales contracted 4.7% q-o-q, lagging the market, which expanded 12%. While Perodua retailing volumes were flat q-o-q, Daihatsu and Hino truck sales declined 37.1%, while Volvo sales continued to languish. Volkswagen vehicle sales rebounded 26.5% qo-q, but were 22.7% lower y-o-y. Overall sales of this marque disappointed, declining 20.1% in 9M13, and will likely miss its 12,000 unit sales target for 2013. While Perodua sales volumes were up 5.7% y-o-y in 9M13, associate contributions rose 21% – helped by favourable exchange rates.
• Forecasts.We cut 2013-14 forecasts by 8.7% and 4.5% respectively after factoring in lower associate earnings and weaker vehicle trading volumes.
• Investment sale.No change to our NEUTRAL call. TP has been revised upwards to MYR3.40 (from MYR3.30) after lifting our target P/E to 9x (from 8.5x) closer to the peer valuations, which range between 9x-12x.

Financial Exhibits

SWOT Analysis

Company Profile 
MBM Resources is a multi-brand automotive retailer for the Volvo, Volkswagen,Mitsubishi, Perodua and Hino marques. It also the distributor of Daihatsu commercial vehicles and owns associate stakes in Hino and Perodua. MBM also manufactures automotive safety equipment.

Recommendation History

Source: RHB