MBM Resources’ (MBM) 1H15 results disappointed on the back of a weak performance at the motor trading division, while losses at its new alloy wheel business remain a drag on earnings. We cut our TP to MYR3.20 (3.5% upside), but maintain our NEUTRAL call on the stock.Consumer and business sentiment is likely to remain soft for another few quarters while the persistent weakness in the MYR is a concern.

Muted 2Q15 results. MBM’s 1H15 earnings were below expectations,after reaching just 46% and 44% of our and consensus 2015 estimates respectively. The deviation from our estimates was mainly from weaker motor trading earnings and higher-than-expected start-up losses at the alloy wheel manufacturing business. Associate earnings, mainly from 25%-owned Perodua, were within expectations and helped to underpin earnings for the group. MBM declared a 4 sen interim dividend, in addition to a special dividend of 3 sen.

Tough environment for motor retailing. Revenue for the quarter under review declined 23.9% YoY aftr motor trading revenue fell 26.3% YoY. Sequentially, adjusted revenues (excluding property development) declined 17.1%. With the exception of Perodua and Volvo, the other vehicle marques distributed by MBM suffered double-digit YoY volume declines during 1H15. Aftersales service revenue improved as vehicle service throughput rose 1.7% YoY. Contributions by indirect subsidiary Autoliv Hirotako, equity accounted as a jointly controlled entity, fell 32%YoY after volumes declined 10% -- reflecting weaker sales to Proton.

Forecasts and risks. We lower our 2015-17 recurring profit estimates by 14.3%, 13.7% and 13.6% respectively, after factoring in lower motor retailing volumes and updating our FX assumptions. Risks include: i) slower-than-expected economic growth; ii) weaker consumer sentiment;iii) higher interest rates; iv) a severe tightening of financing; and v) severe forex fluctuations.

Maintain NEUTRAL. We cut our TP to MYR3.20 (from MYR3.65),derived from applying an unchanged target P/E of 10.5x (in line with peer valuations) to revised 2016 estimates. The weak MYR continues to dampen sentiment on importers. Its alloy wheel manufacturing venture is not expected to break even until 2H16, and with its Iveco commercial vehicle franchise still in the early stages of establishing its brand in Malaysia, we see few catalysts to re-rate the stock.