• Downgrade to SELL (TP: 4.28). MBM’s 1QFY24 net profit of RM80mn (+0.4% YoY) was 32% above both our and the consensus full-year forecasts. Net profit decreased by 18% QoQ but increased by 0.4% YoY, mainly due to i) lower vehicle sales across all brands including Perodua, Volvo, and Volkswagen, and ii) lower contributions from associates’ profit shares, driven by reduced volume and shortened working hours, particularly during the festive season. In 1QFY24, the company did not declare any dividend. Downgrade MBM to a SELL call due to the recent price rally, with an unchanged TP to RM4.28, pegged at 6.6x PER (based on +0.5SD of 5-year mean PER) to FY24F EPS of 64.6sen.

• Key Highlight. The growth in YoY revenue and profit was mainly driven by the sustained high demand for Perodua vehicles. The performance of Perodua managed to offset the lower sales volumes of Volvo and Volkswagen. However, on a QoQ basis, there was a decline in revenue and net profit by 11.8% and 18%, respectively, due to i) lower vehicle sales across all brands, which aligns with the lower Total Industry Volume (TIV) this quarter, and ii) lower sales volume from the Auto Parts Manufacturing Division, attributed to shorter working days compared to the last quarter, with more public holidays and the festival season.

• Earnings revision. No changes to our earnings forecast.

• Outlook. Despite total vehicle sales volume increasing by 8,061 units, or 30% YoY, we anticipate that the volume will begin to decline, with backlog orders decreasing from 120k last year to 100k this quarter. Additionally, challenges linked to declining consumer sentiment towards high-value purchases are evident, primarily driven by TIV normalisation, an 8% SST increase, and the introduction of the RON95 subsidy. Consequently, we do not anticipate substantial earnings growth in the near future due to the prevailing weakened consumer sentiment. However, there is an upside risk to our forecast due to the introduction of the new brand 'Jaecoo' (a premium SUV brand from China) through MBM’s subsidiary, Federal Auto Holdings Berhad, which could boost revenue.

Source: BIMB Securities Research - 28 May 2024