• Stay NEUTRAL, with new MYR3.40 TP from MYR3.38, 7% upside. 1Q22 results came within our and Street estimates, as Perodua performed as expected. We anticipate 2Q to be stronger, as Perodua rushes to fulfil orders before the tax relief expires, and 2H22 sales to be supported by discounts and new launches. While we like MBM Resources’ 8% yield, we maintain our call, given the lack of fresh re-rating catalysts. This report marks the transfer of coverage to Jim Lim.

• Within expectations. MBM reported 1Q21 core PATAMI of MYR50m – within our and Street expectations at 25% of full year estimates. No dividends declared, as expected.

• Results review. YoY, revenue rose 14% from a weak 1Q21, which was due to movement restrictions. A one-off gain from the disposal of a piece of leasehold land (MYR30.4m) lifted EBIT by 530% and net profit by 81%. Absent of the non-core income, core net profit rose by 5%. Core net margin eased 0.9ppt on product mix, and partially due to rising production costs. MBM’s main earnings contributor – 20%-owned Perodua – reported a MYR50.9m profit, an 18% YoY increase. During the quarter, Perodua sold 61,627 units (-13% QoQ, +6% YoY). QoQ, core net profit fell 55% as Perodua’s contribution fell 50%, mainly weighed by production disruption in Jan and Feb 2022, after the Dec 2021 floods.

• Outlook. Perodua’s April sales volume (25,652 units) fell 4% MoM, a relatively limited impact compared to the TIV fall of 23% MoM, caused by chip and component shortages. We expect the said resilience to support May and Jun 2022 sales, as Perodua continues to fulfil its strong order backlog before the expiry of the sales & service tax (SST) exemption. Sales in 2H22 should marginally ease vs 1H22, supported by discounts and the launch of the all-new Alza.

• Forecast. Despite earnings coming in line, we tweak our Perodua FY22 volume assumption to 240,000 units (Perodua: 247,800 untis) from 230,000 units to account for the strong YTD sales volume of 87,278 units. That lifts our FY22F earnings by 0.5% and our TP to MYR3.40. Our TP also includes a 4% ESG discount, based on its ESG score of 2.8 out of 4.0. We maintain our 7x FY22F P/E, or +0.5SD from its 5-year mean, given Perodua’s strong sales volume and relative resilience against component shortages. We maintain our NEUTRAL call on the stock, as it is fairly valued at its 5-year mean forward P/E of 6.3x. Besides, the stock lacks fresh re-rating catalysts, and Perodua’s strong FY22 sales are largely expected by the market and thus, arguably priced in.

• Key downside risks include slower-than-expected normalisation in demand post SST exemption at end Jun 2022, and sustained disruptions in chip and other component supply. The opposite represents upside risks.

Source: RHB Research - 26 May 2022