Investment Highlights

• We reiterate our BUY on MBM Resources Holdings (MBMR) with  the same fair value (FV) of RM5.22/share, based on an  unchanged FY23F target PE of 8x-1.0 standard deviation above  its 5-year average of 6x. No changes to our neutral 3-star ESG  rating.

• Our forecasts are maintained following an analyst briefing last  Friday. Key takeaways include:
   
  • Year-to-date (YTD) market share of Perodua remains strong at 41% (+0.7% YoY). We gather that there are some delays of infotainment parts-related semi-conductor chips lately,  mainly affecting Tier 1 vendors. However, it is still too early to gauge the impact at this stage.
     
  • Segmental-wise, the group’s motor trading division is expected to continue to outperform on the back of robust sales volume of Perodua, in which MBMR has sold nearly  5,500 units in 1QFY23 (+20% YoY). The group has an outstanding order book that can last for 4 months.  Meanwhile, its after-sales throughput also grew 19% YoY, in  line with higher vehicle sales. 
     
  • On the manufacturing front, both of its subsidiaries - Oriental Metal Industries (M) (OMI) and Hirotako Acoustics  (HASB) registered higher sales volume. Riding on the growing demand for cars, OMI sold more units of steel wheels (+11% YoY) and tyre assembly (+25% YoY), while  HASB delivered 10% YoY growth for its noise, vibration, and  harshness (NVH) products.
     
  • Apart from the resilient car sales prospects that will support  earnings, we also expect current margin levels to be  sustainable given that MBMR has some raw material and  forex cost recovery terms with Original Equipment  Manufacturers (OEMs) that entitles the group to pass on  cost fluctuations to a certain extent. For instance, MBMR  has been able to recover costs of RM2 mil at JV level (1% of  FY23F bottomline) during 1QFY23.
     
  • On the outlook, management affirmed that Perodua has not  seen any slowdown in bookings even after the end of the  sales tax-free window, with April orders likely to reach  40,000 units (versus its average 22,000-unit sales per  month). For context, Bezza, Myvi and Axia collectively accounted for nearly 70% of total Perodua sales, in which  the latest monthly bookings have been close to  10,000/8,000/5,000 units, respectively.
     
• At only 5x FY23F PE, the stock is trading below its historical 5- year peak PE of over 9x, while offering a strong dividend yield  of 9%

Source: AmInvest Research - 29 May 2023