Investment Highlights

• Maintain HOLD on MBM Resources (MBMR) with a higher fair value of RM5.47/share (from RM4.63/share) as we raise our earnings forecast and peg our valuation to an unchanged FY25 PE of 8x – 1SD above its 3-year mean. Our neutral 3-star rating remains unchanged.

• We raise FY24F-26F earnings by 3.0%/5.2%/3.7% on expectations that the civil servant salary review will boost car sales, especially on the affordable car segment, namely Perodua and Proton models.

• This new salary scheme will commence on 1 Dec, and we believe the auto financiers will be more liberal in their requirements to approve new loan applicants. This resolves our earlier fears that the auto loan book is overstretched, and financiers will be stricter.

• We observe that in the past civil servant salary scheme review of 2007 and 2012, Perodua enjoyed a demand surge in the following year, suggesting a lag of 4-6 months. But we do not think that there will be any lag this time because there is a huge backlog order of ~100k units at Perodua.

• We believe Perodua Axia and Bezza will enjoy the strongest demand growth boost as the forecasted average civil servant salary increase of RM6,666 is sufficient to cover the annual instalments for these car models, assuming a 9-year loan term.

• We are glad to report that the >25% cut in demand for paint from local car manufacturers observed in July turned out to be an inventory realignment exercise. The paint demand surged in August, and all is back to normal. This means there is no major letdown in demand.

• The stock currently trades at 8x FY25F PE multiple, which is at par with its 3-year historical average. The dividend yield is 7.7% currently assuming a 60% payout ratio, but there is a possibility of another special dividend.

Source: AmInvest Research - 13 Aug 2024