MBMR reported core PATMI RM56.6m for 1QFY22 (-37.0% QoQ; +20.2% YoY), within HLIB’s expectation (25.7%), but above consensus (28.7%). Completed disposal of OMI Alloy assets with net gain of RM32.8m. We expect MBMR to continue leveraging on the strong automotive sales in FY22, given the high backlogs and ongoing strong demand driven by the extended SST exemption measures until 30 Jun 2022 (potentially extend further to year end). Maintain BUY on MBMR with higher TP: RM5.00 (from RM4.80) based on 10% discount to SOP of RM5.52. MBMR offers attractive dividend yield of 6.9%-8.8% for FY22-24.

Within expectation. Reported core PATMI of RM56.6m for 1QFY22 (-37.0% QoQ; +20.2% YoY). We deem the result within HLIB’s forecast (25.7%), but above consensus (28.7%). EI gains of RM32.7m were excluded for the quarter, mainly attributed to the disposal gain from OMI Alloy assets of RM35.6m and netting off the RM2.8m tax for RPGT.

Dividend. Management has recently declared a final dividend of 6sen/share (ex-date: 15 Jun 2022) for FY21, boosting total dividend for the previous financial year to historical high of 26sen/share (yielding 8.2%).

QoQ. Reported core PATMI of RM56.6m (-37.0% QoQ), mainly due to lower group sales volume and contribution from JV/associates (see Figure #3), as OEMs and dealers accelerated deliveries during year end 2021 to clear inventory and meet the high demand, resulting lower inventory level during starting of 2022.

YoY. Core PATMI improved to RM56.6m (+20.2% YoY), on higher overall group sales volume and margins, combined with higher contributions from associate Perodua (see Figure #3).

OMI Alloy. The group has finally completed the disposal of OMI Alloy assets at RM65.5m during the quarter. The net disposal gain was RM32.8m, after netting off RM2.8m tax for RPGT.

Outlook. The group will leverage on the expected continued recovery of Malaysia economy following further relaxation on Covid-19 measures. There are strong carried over order backlog and strong demand for cars as consumers take advantage of the SST exemption extended until 30 Jun 2022 (potentially extend further to year end). Perodua has set 2022 sales target of 247.8k units, as the group plans to increase production for the year to 265.9k units (provided no further supply disruption). However, management cautioned on the underlying risk of shortage of chips and components, along with the threat of material price increase and recent appreciation of USD.

Forecast. Adjusted FY22 earnings by +2.2% and FY23 by -9.9%. Introduce FY24 earnings at RM239.2m.

Maintain BUY, TP: RM5.00. Maintain BUY on MBMR with a higher TP of RM5.00 (from RM4.80) based on 10% discount to SOP: RM5.52. MBMR is currently in a net cash position (58.8 sen/share) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yield of 6.9%-8.8% for FY22-24.

Source: Hong Leong Investment Bank Research - 26 May 2022