MBM Resources - Better days ahead

Author: kltrader   |   Publish date: Thu, 19 May 2016, 11:37 AM 

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All eyes on Perodua in 2H16

In line with our expectations, MBM’s 2016 will be a tale of two halves whereby 2H16 should be stronger HoH, driven by the launch of Perodua’s sedan model. Pending further clarity (i.e. price points, targets, specifications) on the sedan model’s launch, we maintain our earnings forecasts, HOLD rating and TP of MYR2.05 based on 9x FY16 EPS.

Weak 1Q16 was no surprise

1Q16 core net profit of MYR20m (-7% QoQ, -19% YoY) met 22% of ours’ and consensus’ full-year forecasts. The glaring YoY fall in revenue (-37% YoY) was mainly due to the absence of a one-off property disposal gain from the sale of 70%-owned Menara MBMR in 1Q15. Operationally, MBM was not spared from the weak 1Q16 TIV and TIP; QoQ revenue from both motor trading (-15% QoQ, -18% YoY) and auto parts manufacturing (-16% QoQ, -8% YoY) was hit. Cushioned by stronger associates’ earnings (+25% QoQ to MYR27m), core earnings fell by 7% QoQ. No dividends were declared during the quarter.

Betting on Perodua sedan model

A successful launch of the Perodua sedan model carries a threefold benefit to MBM. Firstly, MBM supplies auto parts (i.e. seatbelts, airbags and wheels) to Perodua via wholly-owned Hirotako, 51%-owned Autoliv and 78%-owned OMI. Secondly, MBM distributes ~10-11% of Perodua cars sold in Malaysia via 51.5%-owned DMM Sales (DMMS). Lastly, Perodua is a 22.6%-owned associate which accounts for ~90% of MBM’s bottomline.
In our projection, we expect Perodua to sell 220k units in 2016, of which 15k units are attributed to the sedan model; ~5 month contribution. We expect this model to be priced around the MYR32k-40k range, in order to compete against Proton Saga which accounted for ~40k-45k units in market size in 2015.

Hold your horses

Valuation seems fair at 9.7x FY16 PER with downside cushioned by a FY16 P/BV of 0.5x. Further recovery in Perodua’s earnings on a consistent basis could re-rate the stock. Until then, we stay sideline on MBM.
Source: Maybank Research - 19 May 2016