MBM RESOURCES BHD

By RHB Research Buy (upgraded) Target price: RM2.70

MBM Resources has registered solid first half 2018 results, with net profit growing 89% year-on-year (y-o-y), mainly on better-than-expected sales of Perodua’s Myvi.

However, its third quarter 2018 earnings are likely to be sequentially softer, on lower Perodua sales volume – the result of a recent Myvi supply disruption.

RHB Research estimates the net profit for this period to come in at about RM18mil, implying 0.7% y-o-y and 48% quarter-on-quarter (q-o-q) declines in core earnings.

“Going forward, we expect some improvements with Perodua sales normalising, traction on Volvo sales (with the introduction of the XC40 SUV), and narrowing losses from the alloy wheels business.

“We still expect MBM to remain reliant on Perodua to drive earnings,” said RHB Research.

“Based on the latter’s strong track record in introducing the right product for the market, the research house expects Perodua to continue its local market leadership. It recently launched the updated Alza and has a B-segment SUV in the pipeline.

Volkswagen sales are likely to be softer, following weak September sales despite the tax holiday pricing extension until November 30 – on the absence of compelling new models.

Meanwhile, Volvo Malaysia recently added the XC40 to its SUV line-up, with the S60 sedan slated for launch in the third quarter of 2019. On the autoparts business, the outlook for MBM’s alloy wheels business remains challenging due to high casting wheel rejection and low utilisation rates.