Review

• MBM Resources Bhd (MBM)’s 9MFY19 results came in above expectations. Excluding the disposal gain and other non-core items, 9MFY19 core net profit increased by 25.9% YoY to RM151.7mn. The commendable result was mainly attributable to better performance of the Motor Trading and Auto Parts Manufacturing division, as well as higher contributions from the associates.

• Motor Trading Division – 9MFY19 revenue increased by 14.7% YoY to RM1.4bn, underpinned by strong demands for Perodua, Daihatsu and Hino trucks. PBT stood at RM196.1mn compared to RM130.9mn recorded last year.

• Auto Parts Division – 9MFY19 revenue increased by 8.3% YoY to RM149.7mn due to better product mix and higher production demand. PBT increased by 41.3% to RM28.8mn compared to RM20.4mn recorded last year.

• No dividend was declared for the quarter under review.

Impact

• We revise upward our earnings forecasts for FY19-FY21 by 1.2% - 7.1% to factor in higher associate contributions, lower finance cost and higher earnings contribution from the motor trading division.

Outlook

• MBM will continue to enjoy earnings growth from the new 3rd Gen Perodua Myvi and Aruz in FY19. We believe Perodua is progressing well to achieve its 2019 target of 235k units (+4.1% YoY). Meanwhile, the new dividend policy of minimum 60% payout of its net profit was viewed as icing on the cake

Valuation

• We raise MBM’s TP to RM4.55 (previously RM4.45 based on 5-year average rolling PER of 9x). MBM is doing well fundamentally, and a recent pullback is a buying opportunity, in our view. We believe that the stock still has some potential upside and growth story. Maintain BUY.

Source: TA Research - 22 Nov 2019