Review

• MBM Resources Bhd (MBM)’s 4QFY23 came in above expectations. The variation was mainly due to better margins. Excluding non-core items, 4QFY23 core net profit increased 75.0% YoY to RM97.7mn on the back of a 7.6% increase in revenue.

• Cumulatively, FY23 core net profit increased by 37.2% to RM304.9mn. This accounting for 117% and 110% of our and consensus’ full year estimates.

• Motor Trading Division – FY23 revenue increased by 5.5% YoY to RM2.1bn on the back of higher Perodua sales volume (+17.1% YoY). PBT increased 23.3% YoY to RM314.5mn. If we exclude the associate contribution from Perodua, the adjusted PBT would have been reduced by 14.8% to RM54.9mn, mainly due to the lower sales volumes for Volvo and Volkswagen.

• Auto Parts Division – Despite flat revenue, FY23 PBT decreased by 23.9% to RM55.6mn. Excluding all the one-off disposal gains, the adjusted PBT would have decreased by 8.3%.

• No dividend was declared for the quarter under review.

Impact

• We revise upward our earnings forecasts for FY24 and FY25 by 5.7% and 17.0%, respectively after factoring in better margins and higher contribution from associates.

Outlook

• Despite the positive car sales momentum in 4Q, we observe forward sales orders are showing signs of easing. This could translate to weaker sales in 2024 despite launches of new models, facelift versions, and new variants.

• All in, management expects 2024 to be a challenging year compared to 2023. The high cost of living, introduction of high-value goods tax, increase of the service tax rates and concerns about targeted subsidy rationalisation will put some pressure on the automotive industry.

Valuation

• Maintain SELL on MBMR with a higher TP of RM4.36/share, based on CY24 PER of 7x. We do not see any strong catalyst that could drive the share price higher in the near-term.

Source: TA Research - 29 Feb 2024