MBM show better-than-expected earnings with parts manufacturing turnaround

KUALA LUMPUR: MBM Resource Bhd (MBM) garnered better-than-expected performance in the fourth quarter of financial year 2018 (4QFY18) as it saw a turn around in its parts division performance, driven by underlying volumes improvement.

In a corporate report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Reserach) walked away from an analyst briefing feeling optimistic on the group’s long term prospects.

The main catalyst for this optimism was increased figures in its 4QFY18 results from a turnaround to profit in its manufacturing division.

“To recap, excluding the RM2 million imparement and RM2.7 million provision for its loss-making OMI Alloy factory (OMIA), the parts manufacturing division would have turned in a pretax profit of RM1.4 million for 4QFY18 agaisnt a loss of RM1.3 million seen the year before in 3Q18,” said the research arm.

This positive variant was largely due to better core performances given the higher volumes achieved by Hirotako (NVH products), Autoliv (airbags and seatbelts) as well as tyre assembly and alloy wheel division.

“This was given large orders to fulfil tax-holiday driven volumes as well as commencement of supplies to the Aruz – production ramp-up usually happens a few months prior to actual launch, which was in late January 2019.

“We would also note that impairments taken on goodwill on Hirotako as well as OMIA’s plant in FY17 helped to accelerate the breakeven given lower carrying value of the asset,” guided the research arm.

Perodua’s upcoming Aruz is a highly anticipated SUV model that is expected to fill in the gap of the brand’s product mix.

The group’s associate earnings were also up by 73 per cent y-o-y, driven largely by the fulfilment of back orders for the MyVi due to the production disruption back in 3Q18.

“Perodua invoiced volumes were up 23 per cent q-o-q and 30 per cent y-o-y. This is essentially the tax-holiday driven volumes being delayed into the 4Q18,” explained the research arm.

Additionally, MBM’s dealership division had registered a 19 per cent q-o-q revenue expansion and a 27 per cent q-o-q pretax earnings expansion as Perodua dealerships under DMMs benefited from the fulfilment of back orders for the Myvi.

On a different topic, MIDF Research also reported that MBM’s management has been very tight-lipped on recent news reports on the disposal of OMIA.

“Other than indicating that they have been exploring options to stop the bleeding at OMIA and that negotations have been going on since last year, and that the process should not extend beyond a year if negotiations were successful.”

Once disposed, this will be a positive for MBM as it allowes the group to eliminae a major loss making unit and improve its own group earnings.

Recall that OMIA has registered a net loss of RM28 and 29 million back in FY16 and FY17, and had entailed a negative shareholder fund of R179 million at the end of FY17 agaisnt a total liability of RM224 million and total assets of RM45 million.