Review

• MBM Resources Bhd (MBM)'s 3QFY24 results came in above expectations. After adjusting for non-core items, the core net profit increased by 15.8% YoY to RM87.4mn, while revenue grew by 2.8%. The deviation was primarily due to stronger-than-expected contributions from associates.

• Cumulatively, 9MFY24 core net profit rose by 13.6% YoY to RM235.3mn, while revenue increased by 6.3% YoY to RM1.8bn. This robust performance was driven by higher contributions from both divisions and improved performance from JVs and associates.

• Motor Trading Division – For 9MFY24, revenue grew by 7.9% YoY to RM1.6bn, driven by 19.3% YoY increase in Perodua sales volume and 7.4% YoY improvement in aftersales performance. In contrast, Volkswagen, Volvo, and Daihatsu experienced softer demand compared to the previous year. Overall, PBT rose by 9.1% YoY to RM235.8mn. Excluding contributions from the associated entity, adjusted PBT recorded a 3.6% YoY increase to RM38.3mn.

• Auto Parts Division – Despite lower revenue (-3.8% YoY), 9MFY24 PBT increased by 21.9% to RM45.6mn, primarily driven by improved margins emanated from high demand coupled with sustained cost efficiencies.

• The group declared a 2nd interim dividend of 7.0sen/share and a special single tier dividend of 22.0sen/share for this quarter. This brings the total dividend to 45sen/share, compared to 39sen/share declared in the same period last year.

Impact

• We revise our earnings forecasts for FY24 – FY26 upward by 10.5% - 11.4% after factoring in higher associates and JVs’ contributions.

Outlook

• Management remains cautiously optimistic about the outlook considering the risks of global macroeconomic headwinds.

• Meanwhile, management expects the civil servant salary hike and expected minimum wage increase to boost domestic consumption, while the proposed fuel subsidy reforms may drive greater adoption of electric vehicles (EVs).

• The demand is expected to stabilise as consumers explore more options, especially in the mid-market passenger vehicle segment.

• We anticipate more Chinese EV brands entering the local market, intensifying competition among automakers and posing challenges for existing players. This fierce competition has already triggered a price war.

Valuation

• MBMR's target price has been raised to RM6.40/share, based on a CY25 PER of 8.6x, which is in line with the average 5-year rolling forward PER. We maintain a SELL rating on the stock.

Source: TA Research - 26 Nov 2024