• Stay NEUTRAL, new MYR3 TP from MYR2.75, 9% downside. 2Q22 net profit met expectations, as revenue and earnings rose in tandem with unit sales growth. We maintain our FY22F Perodua sales of 250k units but lift FY23F-24F unit numbers in light of the encouraging July orders that reflect strong demand for the all-new Alza. A special DPS in 2Q22 positively surprised, hence we raise our future DPS assumptions. Despite an attractive FY23F 6.7% yield, we maintain our call on MBM Resources in anticipation of softer Perodua sales and earnings in FY23.

• Earnings as expected, but dividend surprised. MBM reported a 2Q22 core net profit of MYR57m, bringing 1H22 core earnings to MYR107m, within our and Street expectations at 50% and 51% of full-year estimates. Its first interim DPS of 6 sen and special DPS of 10 sen brought YTD DPS to 16 sen, above our FY22F DPS of 25.5 sen.

• Results highlights. QoQ, revenue and core net profit rose 16% and 15% – mainly due to higher Perodua, Volvo, and Hino sales. Perodua reported an associate contribution of MYR54m (+7% QoQ), in line with the 7% QoQ increase in Perodua unit sales. YoY, revenue rose 40% against a locked down 1H21, while operating leverage further lifted earnings up 67%.

• Perodua’s July unit sales fell 13% MoM to 18,346 units, as production fell 22% – likely due to its components vendors’ continued lack of foreign labour. This left Perodua with a capacity utilisation of 61% (June: 78%).

• Outlook. We expect 2H22 sales to remain robust and maintain our FY22F Perodua unit sales of 250k units. While we still expect Perodua sales to soften in FY23, given the macroeconomic headwinds, we are pleasantly surprised that the marque received 24,265 orders in July, even as the sales & service tax exemption ended. We suspect this was largely fuelled by orders for the all-new Alza, which we think can grab market share in the B- segment. Consequently, we raise our FY23F-24F Perodua unit sales to 210-220k from 200-210k.

• Forecast. We also raise FY23F-24F earnings by 10-9%. As DPS surprised, we raise FY22F-24F DPS to 33-23 sen from 25.5-21.8 sen, representing payout ratios of 58-43%. Note: MBM had a c.44% payout ratio in both FY19 and FY20. The higher earnings lifted our TP to MYR3. We maintain our 6.5x FY23F P/E, at around -0.5SD its 5-year mean, to account for Perodua’s relatively dimmer prospects – in our view – in FY23. Our TP also includes a 4% ESG discount, based on its ESG score of 2.8 out of 4.0. We maintain our NEUTRAL call on the stock, as we remain cautious on the softening Perodua sales in FY23.

• Key downside risks include lower-than-expected orders and deliveries, and sustained disruptions in chip and other component supplies. The opposite represents the upside risks.

Source: RHB Research - 26 Aug 2022