MBM seen supported by strong balance sheet amid uncertainty

PETALING JAYA: MBM Resources Bhd’s strong balance sheet is expected to help steer the company through the economic uncertainties and challenges that lie ahead.

MIDF Research said the company’s balance sheet remains solid at a net cash of Rm189mil.

“The management is undertaking countermeasures to tighten operating and capital expenditure while new marketing platforms are being implemented,” it said in a recent report.

Additionally, MIDF Research said that while the company paid out generous dividends in 2019, the trend is unlikely to sustain going into 2020.

“A final dividend of nine sen per share for 2019 was proposed, which takes total dividends for the year to 22 sen per share (45% payout), largely within our expectations.

“This translates into generous yields of 7.9%, but we would bear in mind the cyclicality of MBM Resources’ earnings which is affected by the Covid-19 preventive measures and its impact on the underlying macro condition. We think the generous dividends are unlikely to sustain in 2020 and forecast lower yields of 4.9%.”

MBM Resources’ net profit in the first quarter ended March 30 declined 45% from the same quarter last year to Rm27.23mil as the movement control order (MCO) disrupted its business operations.

Revenue from its continuing operations fell 27.9% year-on-year to Rm374mil.

Both the motor trading and auto parts manufacturing divisions recorded lower contributions due to the government-mandated shutdown.

MBM Resources added that apart from the disruption caused by the MCO, the auto parts manufacturing division also experienced pricing issues for certain carmakers.

MIDF Research said it expects earnings to weaken further in the second quarter, before gradually recovering from the third quarter onwards.

“The magnitude of the recovery however, is still highly uncertain at this juncture given a deteriorating macro, employment and wage outlook, which is likely to dampen auto demand in the near term.

“Our 2020 and 2021 earnings forecast are currently 16% and 8% below consensus,” it said.

Kenanga Research said MBM Resources’ business strategy lies in its deep value stake in 22.58%-owned Perodua as well as dual-income streams as the largest Perodua dealer and as parts supplier for most of the popular marques.

“Perodua market share of 42% is supported by higher delivery of all-new Myvi, all-new Perodua Aruz and face-lifted Bezza. Perodua is cautious on 2020 due to challenging factors such as intense competition, weakening consumer sentiment, stringent hire purchase requirement as well as global economic uncertainties,” said the research house.