• Maintain NEUTRAL and MYR5.95 TP, 6% downside. MBM Resources’ 9M24 earnings met our expectation but missed Street’s estimate. We believe Perodua sales will continue to drive its future earnings. Despite anticipating a softer FY25 earnings outlook, we recommend investors hold their positions in MBM for its attractive c.8% FY25F yield.

• In line results. 9M24 core earnings of MYR235.6m met our but exceeded Street’s expectations, making up 74% and 83% of FY24F earnings. MBM declared a special DPS of 22 sen on top of a 7 sen interim DPS. YTD DPS of 45 sen exceeds our full-year DPS forecast of 58 sen for FY24.

• Results highlights. MBM’s revenue rose 12% QoQ, which is expected given the longer working quarter on top of planned factory maintenance shutdowns in April and June. However, core net profit rose by a higher 29% QoQ, in line with stronger associate contributions, which increased 30% QoQ due to higher production and Perodua sales. QoQ, both motor trading and auto parts manufacturing recorded operating profit increases of 25% and 17%, bringing YTD profit before interest and tax (PBIT) growth to +7% and +20%. Regardless, its associates’ contribution, mainly Perodua, still makes up the largest portion of bottomline at 71% of 9M24 PBT.

• Outlook. We believe Perodua is poised to post another record-breaking year for its sales delivery, with 10M24 sales at 294k units (+10% YoY). Note that in 2023, Perodua managed to deliver 330k units. With a backlog of slightly above 100k units as of end-June, we believe Perodua’s sales deliveries will remain robust despite the expected cyclical sector downturn, which continues to make up the majority of MBM’s earnings.

• Forecasts. While we maintain our earnings forecasts due to in-line results, we raise our FY24-26 core dividend pay-out assumptions to 74-80% (from 70-71%) given the pay-out surprise this quarter. We believe MBM should be able to give out dividends within the range considering its healthy balance sheet, with a net cash-to-market cap ratio of 11%.

• Keep NEUTRAL, with an unchanged MYR5.95 TP, based on 8.5x FY25F P/E. Our TP includes a 2% ESG discount, given its ESG score of 2.9, below the country median of 3.0. We maintain our call, as we believe the valuation is fair, while its c.8% FY25F dividend yield should provide support to the price.

• Key downside risks include lower-than-expected orders and deliveries, higher-than-expected costs, and resurgent supply chain constraints. The opposite represents the upside risks.

Source: RHB Securities Research - 26 Nov 2024