MBM  Resources’  2013 earnings were in line with  our  expectations  but below  consensus  estimates.  The  trading  of  continental  marques  and associate  contributions  disappointed,  offset  by  favourable  JPY/MYR exchange rates  during the quarter, higher Perodua retail volumes and  a stronger  performance  at  Hirotako.  At  a  fully  diluted  P/E  of  9.2x,  the stock looks fairly valued. Maintain NEUTRAL, with a MYR3.40 TP.

• In line  with  expectations.  MBM  Resources’  2013 earnings  were within our  expectations  but  fell  about  3.4%  below  consensus  estimates. Revenue  for  the  year  was  flat  at  MYR2.26bn  while  its  net  profit  of MYR138.6m  ticked  up  by  just  1.6%  y-o-y.  The  operating  margin contracted to 3.1% (2012: 4.1%) which resulted in a 23.6% y-o-y decline in  EBIT,  offset  by  a  11.7%  rise  in  associate  earnings  to  MYR140.0m. The  effective  tax  rate  of  9.2%  was  slightly  lower  than  expected,  while minority interest charges were in line.  A 3 sen second interim dividend was declared.
• Auto trading down. Its wholly-owned auto retail subsidiary Federal Auto SB reported a 14.2% y-o-y decline in sales volume. This was mainly due to a 26.6% contraction in total Volkswagen sales and an 8.1%   decline in Volvo  sales.  Meanwhile,  Perodua  retail  volumes  rose  8.8%  y-o-y  and helped  to  lift  total  group  vehicle  sales  by  4%.  The  sales  volume  for Hirotako vehicles ticked up by  3.5% y-o-y  -  in line with the 5.6% y-o-y increase  in  total  industry  production .  Perodua  and  Hino  vehicle  sales helped lift associate earnings by 11.7% although this was still lower than expected,  mainly  due  to  higher  marketing  and  start-up  costs  from Perodua’s new manufacturing facility. Its new alloy wheel plant remained in the red in 2013.
• Forecasts.  We  leave  our  2014  earnings  estimates  ahead  of  the company’s analyst briefing today, and introduce our 2015 forecasts.
• Investment  sale.  We  maintain  our  NEUTRAL  call  and  target  price  of MYR3.40. The stock  currently trades at a fully diluted  P/E  of  9.2x  that is close to peer valuations, which range between 9-12x.

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.  The  company  also  manufactures automotive safety equipment.

Source: RHB