• Maintain NEUTRAL with a higher MYR5.95 TP, 1% upside. We came away from MBM Resources’ 1H24 analyst briefing feeling more bullish on the outlook for Perodua, its major earnings contributor. While we anticipate higher YoY earnings for MBM this year, we believe valuation is now fair as share price has risen 39% YTD. However, we advise investors to hold their positions given its handsome c.9% FY25F yield.
  
  Perodua continues to drive MBM’s earnings growth. In 2Q24, Perodua sales volumes slipped 2% QoQ as it underwent planned factory maintenance shutdowns in April and June, which coincided with long holidays. Regardless, it still managed to chalk 17% YoY increase in 1H24. Making up c.70% of 1H24 PBT, we believe Perodua will continue to deliver the lion’s share of MBM’s earnings moving forward. As Perodua now charts 16.6% YTD growth with backlog remaining at above 100k units, we believe 2024 is poised to be another record year for the national carmaker. Hence, we raised our Perodua sales units FY24/25/26 forecasts to 345k/315k/295k units from 330k/295k/280k. Our new FY24 sales volume assumptions translate to 4% YoY growth.

• What about Jaecoo? The addition of the Chinese brand to MBM’s offerings has yet to be translated to its earnings, as its sole model available in Malaysia (J7) was only launched in July with the first 500 units delivered in August. MBM has set up a Jaecoo showroom at its own office tower, with another 3S/4S centre planned to be built in Segambut which would cost c.MYR7-8m. While the service centre is expected to go online in 2Q25, we should see contributions from this marque from 3Q24 onwards though management did not share its sales target. Hence, we imputed Jaecoo’s contributions to our forecasts with conservative assumptions of 150/600/800 sales units in FY24/25/26 considering the intense competition within the SUV sub- segment for non-national marques.

• Forecasts. We raise our FY24-26F earnings by 8%, 13%, and 9% given our upward revisions on Perodua sales volume assumptions as well as taking into account Jaecoo’s contributions moving forward. Given the increase in earnings, we also raised our FY24/25/26 DPS assumptions to 58/40/46 sen, from 48/42/42 sen.

• Still NEUTRAL with a higher TP, based on 8.5x FY25F P/E which is in line with its local peers. Our MYR5.95 TP includes a 2% ESG discount based on its ESG score of 2.9. We believe the stock is fairly valued, while its sector-high dividend yield should serve as an incentive for investors to hold this counter. Key downside risks include lower-than-expected orders and deliveries, higher-than-expected costs, and resurgent supply chain constraints. The opposite represents upside risks.

Source: RHB Research - 2 Sep 2024