MBM poised to ride on re­cov­ery in auto sec­tor

New launches, in­clud­ing the Pero­dua Aruz, bring ex­cite­ment

The Star Malaysia - StarBiz - - Companies & Strategies - By DANIEL KHOO [email protected]­tar.com.my

MBM Re­sources Bhd may be one of the com­pa­nies that is best placed to ride on the an­tic­i­pated up­swing in the au­to­mo­tive in­dus­try given its ex­po­sure as a share­holder of Perusa­haan Oto­mo­bil Ke­dua Sdn Bhd (Pero­dua).

Ex­cite­ment ap­pears to be re­turn­ing to the au­to­mo­tive in­dus­try as new car mod­els are launched and the Chi­nese New Year may see de­mand for new cars ris­ing.

The re­cent launch of the Pro­ton X70 sport util­ity ve­hi­cle (SUV) has reignited some in­ter­est in the in­dus­try and the sec­ond na­tional car­maker Pero­dua will also be un­veil­ing its own SUV – the Aruz.

The in­dus­try gen­er­ally took a back­seat for last year and the year be­fore as the ride-shar­ing phe­nom­e­non took the lime­light fol­low­ing ag­gres­sive pro­mo­tional cam­paigns. There was also the con­stant high­light on the ef­forts to in­crease rail in­fra­struc­ture in the coun­try mov­ing for­ward.

All the con­certed ef­forts also led to a be­lief that there would not be a ne­ces­sity to own cars.

It ap­pears that in­ter­est could be re­turn­ing after the con­sol­i­da­tion of the ride-shar­ing in­dus­try fol­low­ing the Grab-Uber merger in South-East Asia early last year that had likely re­duced com­pe­ti­tion and the in­creased gov­ern­ment reg­u­la­tions that may give fur­ther up­ward pres­sure on ride fares.

MBM’s share price ap­pears to be re­flect­ing this ex­cite­ment as in­vestors bet that the new car launches will ben­e­fit the com­pany.

MBM, which is a 22.6% share­holder of Pero­dua, is also in­volved in other seg­ments of the au­to­mo­tive in­dus­try namely mo­tor trad­ing and the man­u­fac­ture of au­to­mo­tive parts.

Its shares last traded at its near seven-months high at RM2.41 yes­ter­day with heavy vol­ume in­di­cat­ing re­turn­ing in­ter­est.

Maybank In­vest­ment Bank Re­search, in a re­cent re­port dated Jan 3, says MBM has the best ex­po­sure to Pero­dua not­ing that the share price rally has some legs this time around.

When it re­leased this re­port, it also in­creased its price tar­get for the counter to RM4.50 re­tain­ing its “buy” call which in­di­cates an 86.7% up­side from present prices.

“De­spite a re­cent climb in share price (+17% in the last one month), MBM is still very much un­der­val­ued as its 22.6% ef­fec­tive stake in Pero­dua alone is worth RM2.2bil (based on 13 times fi­nan­cial year end­ing Dec 31) price to earn­ings ra­tio to our re­vised Pero­dua earn­ings of RM737mil in FY19 which is 2.5 times that of MBM’s cur­rent mar­ket cap­i­tal­i­sa­tion,” says the re­search house.

An­tic­i­pat­ing the launch of the Pero­dua Aruz, Maybank In­vest­ment says it is in­clud­ing con­tri­bu­tion from this model of about 2,000 units monthly for FY19 and 1,500 units per month in FY20 into its earn­ings es­ti­ma­tion for the com­pany.

This is slightly lower com­pared with Pero­dua’s own es­ti­mated tar­get of 2,500 units of the Aruz monthly.

“Par­tially off­set by ex­pec­ta­tion for lower sales of the other mod­els such as the Myvi, Bezza and Alza for re­vised as­sump­tions, we raise MBM’s FY19/20 earn­ings fore­casts by 8%/6% re­spec­tively. Eyes will be on the book­ing and de­liv­ery of this model, to be re­vealed fre­quently in the next few months,” it says.

“A con­sis­tent out­per­for­mance could present fur­ther up­side to our earn­ings fore­casts,” it notes.

It also says Pero­dua has al­ready achieved its 2018 sales tar­get of 209,000 units in the 11th month of its FY18 and is poised to ex­ceed its 220,000 units (+7% year-on-year) as­sump­tion by 3%-5%.

Maybank In­vest­ment is ex­pect­ing the com­pany to re­port fur­ther se­quen­tial earn­ings growth in the fourth quar­ter of FY18 from an al­ready solid third quar­ter.

“This would help MBM close the year on a new high; beat­ing its 10-year-high of RM142mil net profit that was set in 2010. For 2019, the in­tro­duc­tion of the new Pero­dua Aruz and Toy­ota Vios and Yaris mod­els should also of­fer fur­ther op­por­tu­ni­ties for MBM’s al­loy-wheel plant,” it says.

The con­sen­sus rat­ing on Bloomberg is bullish as it showed all nine re­search houses cov­er­ing the com­pany had “buy” calls on the counter.

In­ter­est­ingly, the buy calls are aplenty de­spite a cau­tious out­look pre­sented by MBM in its third quar­ter for FY18’s note.

In the notes to its fi­nan­cial state­ments, the com­pany had said the op­er­at­ing en­vi­ron­ment for the rest of the fi­nan­cial year would re­main chal­leng­ing as most con­sumers’ buy­ing in­ter­est have been ful­filled dur­ing the goods and ser­vices tax (GST)-hol­i­day pe­riod.

“As an­tic­i­pated in the ear­lier quar­ter, our ve­hi­cle sales ben­e­fited from the GST tax-hol­i­day pe­riod which ended on Aug 31, 2018. The higher de­mand was, how­ever, sup­pressed by in­suf­fi­cient stocks to meet mar­ket de­mand, as well as the rein­tro­duc­tion of sales and ser­vice tax in Sep­tem­ber which damp­ened con­sumers’ in­ter­est,” MBM says in its note.

It says the un­ex­pected sup­ply dis­rup­tion fur­ther con­stricted the sales vol­ume in Sep­tem­ber 2018, although the is­sue was promptly re­solved early into the fourth quar­ter.

The third quar­ter for the FY18 showed its net profit ris­ing by more than three-fold to RM38.11mil from RM7.33mil in the same quar­ter a year ago.

While rev­enue for the quar­ter rose slightly to RM472.48mil from RM466.81mil in the same quar­ter a year ago.

MBM at­trib­uted the in­creased prof­its to im­proved re­sults from the man­u­fac­tur­ing of auto parts and its as­so­ci­ates while the pre­vi­ous year’s quar­ter also saw a one off good­will im­pair­ment of RM10.8mil com­pared with zero im­pair­ments in the re­cent quar­ter.

With MBM’s ex­po­sure to two of the brands that con­tin­ues to hold its es­tab­lished rep­u­ta­tion in the au­to­mo­tive space: Toy­ota and Pero­dua, MBM is poised to ride on the re­cov­ery in the in­dus­try even as car launches ramp up with the up­com­ing Chi­nese New Year cel­e­bra­tions.

Solid per­for­mance: A teaser im­age of the new Pero­dua SUV. Maybank In­vest­ment is ex­pect­ing Pero­dua to re­port fur­ther se­quen­tial earn­ings growth in the fourth quar­ter of FY18 from an al­ready solid third quar­ter.

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