Investment Highlights

• We maintain HOLD on MBM Resources (MBMR) with a lower fair value of RM3.99/share (vs. RM4.95/share previously) as we reduce MBMR’s FY24F net profit by 4%. This is to account for weaker associate contribution and softer sales volumes resulting from the disruption in the supply chain. We have trimmed FY24F Perodua sales volumes by 3% to 285k units from 295k units previously.

• Our fair value of RM3.99/share is based on an unchanged FY24F target PE of 8x, which is 1.0 standard deviation above the 5-year average of 6x. No changes to our neutral 3-star ESG rating.

• We have only reduced Perodua’s FY24F sales volumes by 3% as we believe that the disruption to MBMR’s supply chain is temporary. Also, Perodua has a high model localisation rate of 90-95%. We do not think that Daihatsu would suspend vehicle shipments by more than 2 months.

• Furthermore, the emergence of pent-up demand when supply normalizes would bolster Perodua’s sales volume and partially offset the negative impact. In the long run, we believe that Perodua would still be favourable among consumers due to the high quality of its cars and affordable pricing.

• Daihatsu’s announcement yesterday to suspend vehicle shipments in Japan and overseas markets is a follow-up to an earlier announcement on 28 April 2023. The latter was in respect of procedural irregularities pertaining to the side collision impact safety testing. The irregularities recorded recently also include crash tests and door trim.

• Perodua’s models that are involved in the procedural irregularities are Axia, Aruz, Alza, Ativa and Bezza. These make up 78% of overall sales volume. Myvi is not included as only the 2nd gen version was affected, which is no longer sold by Perodua.

• In the worst-case scenario that Daihatsu suspends vehicle shipments for 3 months, we believe that MBMR’s FY24F net profit would drop by 8%. The situation could be exacerbated by the negative consumer perception on Perodua, which may affect sales.

• Currently, Perodua is studying the impact of Daihatsu’s shipment suspension and has yet to share the outcome with the authorities to the public.

• It is uncertain whether MBMR has an insurance for loss of business. However, we believe that the group may request for compensation from Daihatsu for lost revenue over its production halt.

• MBMR trades at a FY24F P/E of only 5x vs. its historical 5- year peak of over 9x, with a decent dividend yield of 7%.

Source: AmInvest Research - 22 Dec 2023