MBM records strong 3Q, outperforms expectations
KUALA LUMPUR: MBM Resources Bhd (MBM) recorded a strong third quarter of 2018 (3Q18), generally beating expectations.
While analysts cautioned of the the post-sales and services tax (SST) weakness, they remain optimistic on the group’s outlook which could be supported by the potential new national SUVs, the strong growth in Perodua, and recovery in the automotive industry production.
According to Affin Hwang Investment Bank Bhd’s research team (Affin Hwang), MBM’s first nine months of 2018 (9M18) core profit grew 94.5 per cent yearon-year (y-o-y) to RM103 million, driven by better performance across all its key segments, which benefitted from the zerorated goods and services tax period between June to August 2018.
It also pointed out that contribution from the associates rose commendably by 57.7 per cent y-o-y to RM115 million, thanks to the continued demand for Perodua key models.
Elsewhere, it said, the auto parts manufacturing division continued to show further improvement - achieving lower losses of RM9 million in 9M18 (compared with RM19 million in 9M17) on continuous improvement in efficiency from the increased total industry production (10.3 per cent y-o-y). This has also led to an improvement in EBITDA margins by 0.6 ppts to 1.5 per cent.
Meanwhile, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that MBM’s dealership division registered a five per cent q-oq revenue contraction while earnings would have contracted if not for a one-off gain on property disposal of RM1.9 million. Despite strong demand in 3Q18, there was a shortage of stock supply, which was made worse in September due to the MyVi supply issue,” it added.
Looking ahead, the research team noted that key catalysts for MBM lies in the strong growth in Perodua total industry volume (TIV) on the back of the new MyVi and a new SUV to fill up a vacum in its model mix, a strong ringgit against the Japanese yen, and arecovery in industry production driven by new national car launches.
“That said, MBM remains a cheap proxy to Perodua’s volume expansion and the spillover on its parts manufacturing and Perodua dealership units. It has an attractive 27 per cent y-o-y earnings growth (FY18F) for less than half FY18F BV and on the back of a lean balance sheet (eight per cent net gearing),” it added.
MIDF Research also noted that MBM auto parts division, particularly OMI Alloy (OMIA) is a beneficiary of Perodua’s new SUV and OMIA is understood to have been invited to negotiate supplies to Proton’s X70 which is expected to be localised next year (initial launch in 4Q18 to comprise CBUs).
“MBM’s has yet to make a decision on this depending on cost, price and volumes. MBM auto parts is also a possible beneficiary of the third national car depending on the final details, business model and requirements. Notably, Hirotako is the only local manufacturer of airbags and one of the largest local manufacturer of safety systems such as seatbelts,” it added.
While optimistic on the group’s outlook, MIDF Research cautioned on post-SST weakness.
“Perodua maintained its 2018 forecast of 209,000 units in anticipation of weakness from September onward after SST is reintroduced.
“Whilst we acknowledge this, we think the weakness is temporary and beyond 2018, possibly improved consumer spending power could drive a structural improvement in demand.
“More importantly, Perodua is scheduled to launch its SUV model by year-end, which plugs an important gap in its model mix. Channel checks suggest pricing in the sub-RM80,000 range and the model is likely to be timed close to Proton’s SUV (CKD version) launch scheduled 1H19,” it explained.
Allin,MIDFResearchreaffirmed its ‘buy’ call on MBM.