Investment Highlights

• Maintain HOLD on MBM Resources (MBMR) with an unchanged fair value of RM4.63/share, pegged to FY25 PE of 8x – 1SD above its 3-year mean. Our neutral 3-star rating remains unchanged.

• We believe the upcoming 2QFY24 results will be flattish QoQ, but +36% higher YoY. Note that 2QFY23 was negatively impacted by the expiry of SST exemption at the end of Mar 2023.

• 2QFY24 will be supported by the huge backlog orders of +100k various Perodua models.
   
• We forecast that 2H24 will be more challenging for MBMR due to the following reasons:
   
  • Backlog orders have eased and reverted back to normal levels,
     
  • ​​​​​​​Banks are tightening their auto financing books as the composition of total system loans has exceeded historical norms. The marginal quality loan applicants are likely to be most affected, and
     
  • We gather from domestic auto paint suppliers that demand has declined precipitously in Jun (>25%), this has historically been a reliable gauge on forward 1-2 months production rates.
     
• The first stage of e-invoicing will commence in August 2024, and this could put an end to the ‘technically wrong’ practice of 100% loan for cars. The rules stipulate 90% loan + 10% deposit, but some unscrupulous sales agents have been marking up the price of the car for a loan application to match with the actual price of the car.

• This practice is an open secret. It is popular as many people do not have the 10% deposit at hand. We do not know how many auto loans fall into this category, but it is very likely to be prone in the budget car segments, namely Perodua and Proton.

• Our forecasts are lower than consensus as we think the market is underestimating the upcoming challenges of obtaining auto financing.

• The stock currently trades at 8.9x FY24 PE multiple, which is 11% above its 3-year historical average. The dividend yield is 5.6% currently assuming a 50% payout ratio, but there is a possibility of another special dividend.

Source: AmInvest Research - 15 Jul 2024