• U/G BUY from Neutral, new MYR5 TP from MYR3.20, 35% upside. With the latest promising orders for 20%-owned Perodua, we are getting greater visibility on 2023 earnings. The likely-popular all-new Axia could further add to Perodua's existing 220k orders, boosting earnings. We estimate a FY23 yield of 10%, with prospects of a special 4Q22 DPS – possibly FY23 too.

• We believe the all-new second-generation (gen) Axia will be very popular, as: i) It offers tremendous value (still one of the most affordable of all new cars here) with new tech and safety features, and ii) many existing owners may want a new model, as the outgoing first-gen was initially launched in 2014 and last facelifted in 2019. Note: The base specification (spec) price has risen 60%, with the top-spec rising 15%. Perodua President and CEO Dato’ Sri Zainal Abidin Ahmad attributed the price rise to new features and its larger size, and not inflationary pressure – Perodua has vowed not to increase existing models’ prices in 2023 for as long as it can withstand it.

• Perodua is targeting 314k unit sales in 2023. Perodua already has 220k units of orders on hand, including for the new Axia. This implies that it only needs 94k more orders in the remaining 10 months of 2023 to achieve its internal target. We forecast Perodua to book 320k unit sales in FY23, backed by its 330k units production target.

• We lift FY22F-24F earnings by 10%, 44%, and 5%. The outsized FY23 revision is due to: i) Bearish pre-revision estimates (premised on soft volumes), but ii) almost entirely from increasing unit sales to 320k from 220k. Due to Perodua's absorbing of higher COGS in 2023, we have baked in lower margins. We also assume lower ASPs on Axia's greater contribution to the product mix. Recap: Perodua typically makes up >80% of MBM Resources’ earnings, with >90% contributions in some quarters.

• Slew of upward earnings revisions pending? Bloomberg data shows Street forecasting FY23 earnings of MYR223m, with most revisions last done at end-Nov 2022. We think that, after the forthcoming 4Q22 results, there could be a slew of upward earnings revisions to bake in the high 2023 Perodua unit sales and strong orders. With the revised earnings, we forecast MBM to yield an attractive 10% in FY23 based on c.50% DPR – in line with recent trends. We also highlight the potential for special dividends in 4Q22, given its blockbuster FY22F earnings. Recap: Management previously did not rule out the possibility of another special dividend in FY22. In each 4Q21 and 2Q22, it paid out 10 sen in special DPS.

• U/G BUY, new MYR5 TP (inclusive of a 4% ESG discount) on 7x FY23F EPS (previously 6.5x), above its 5-year mean of 6x – reflecting MBM's improving prospects and favourable dividend outlook. Our upgrade is mainly premised on stronger-than-expected orders and improving sector prospects.

• Key risks include weaker-than-expected orders and deliveries, and resurgent supply chain constraints.

Source: RHB Research - 20 Feb 2023