MBM gaining traction
Firm’s coming quarters to benefit from new Myvi
AUTOMOTIVE firm MBM Resources Bhd has been gaining share price traction, likely due to analyst coverage which guided for a better year ahead with the newly launched third-generation Perodua Myvi.
The company, which is involved in the manufacturing of automotive parts and motor trading businesses, saw its share price climbing steadily to RM2.21 before tapering to RM2.19 as of Thursday’s close.
MBM holds a 22.6% stake in Perusahaan Otomotif Kedua Sdn Bhd (Perodua).
According to AmInvestment Bank, MBM’s coming quarters will benefit from the new Perodua Myvi by way of higher associate earnings from its stake in Perodua, as well as improved topline for the auto parts manufacturing segment.
MBM represents six vehicle brands and two tuning brands in the motor trading segment – Volvo, Volkswagen, Hino, Mitsubishi, Daihatsu and Perodua, among others.
In addition, MIDF Research forecasts Perodua earnings to grow by 13% in financial year 2018 (FY18), reflecting fresh contribution of the carmaker’s new model launches.
“An expansion into the sport-utility vehicle segment could drive further significant growth beyond FY18, while the strong ringgit against the yen is positive for Perodua’s margins.
“MBM’s auto parts manufacturing (mainly airbags, seatbelts, steering and wheels) and Perodua dealerships are spillover beneficiaries of Perodua’s new launches in the next 12 to 14 months,” says MIDF Research.
It has been reported that over 20,000 units of the new Perodua Myvi has been booked within a month since it was opened for booking.
MBM’s equity-accounted Perodua earnings fell 18% year-onyear and were flattish quarter-on-quarter for the third quarter ended Sept 30, 2017, as it took a margin hit from the run-out of the old Myvi.
MIDF Research expects this trend to improve significantly in the fourth quarter, given the launch of the new Myvi in November and the strong take-up with the latest three to four months waiting list.
The research house adds that Perodua is targeting to sell 6,000 new Myvi units per month, a 30% increase compared to the average monthly Myvi sales in the first half of 2017.
“Share price has already fallen 40% from the peak of RM3.29 in S June 2015, reflecting weak earnings in the past few years.
“Valuation at just 8.6 times FY18 earnings is now undemanding, relative to the nine times historical valuation, while expectations are now at rock bottom.
“At FY18 price-to-book value of just 0.48 times, MBM is already trading at trough valuations,” said MIDF Research, adding that MBM’s deeply undervalued stake in Perodua positioned it as a prime acquisition target.
MBM registered a 65.5% drop in net profit to RM7.33mil for the third quarter of FY17 as compared to the previous corresponding quarter, mainly due to impairment on goodwill of RM10.8mil and its alloy plant’s inventory and tooling provision of RM2.5mil.
As of Sept 30, 2017, the group’s cash and cash equivalents stood at RM176.38mil, while its bank borrowings amounted to RM50.67mil.
Meanwhile, AllianceDBS Research in an analyst report points out that the key concern for MBM will be its OMI Alloy plant, which is still running at a loss.
The plant has not reached optimum production levels and to break even, production volume must hit 50,000 units per month.
As at end August, production volume of OMI Alloy plant was only 30,000 units per month.
AllianceDBS Research adds that the management of MBM expects the alloy plant to only turn around in the second half of FY18, despite incoming orders for the new Myvi.
It says the newly-launched Perodua Myvi may help to mitigate losses at the OMI Alloy plant.
This is backed by the supply of auto parts from 51%-owned joint venture Autoliv Hirotako Sdn Bhd, the distribution of Perodua vehicles from subsidiary DMM Sales Sdn Bhd and a 22.6% stake in Perodua.
“Other new and face-lifted models to be introduced within the group’s marques such as the Volkswagen Golf GP, Volkswagen CC and Volvo S90 complete knockdown could also help support volumes in the coming quarters.
“However, margins for the motor trading segment continue to be pressured by intense competition,” says AllianceDBS Research.
The Malaysian Automotive Association has forecast a marginal total industry volume (TIV) growth of 1.7% to 590,000 units for this year.
TIV hit 580,124 units last year, meeting the association’s target of 580,000 for 2016.