MBMR’s FY23 results beat expectations. Its FY23 core net profit soared 36% driven largely by higher profit contribution at 23%- owned Perodua vehicle maker Perusahaan Otomobil Kedua Sdn Bhd on higher margin new model sales. MBMR will continue to ride on Perodua vehicles, both in terms of production and distribution. We raise our FY24 net profit forecast by 5%, lift our TP by 5% to RM5.80 (from RM5.50) and maintain our OUTPERFORM call.

MBMR’s FY23 core net profit beat our forecast and the consensus estimate by 15% and 10%, respectively. The variance against our forecast came largely from stronger-than-expected profit contribution from 23%- owned Perodua vehicle maker Perusahaan Otomobil Kedua Sdn Bhd (thanks to a favourable sales mix towards higher-margin new models i.e Axia & Alza). However, it does not declare a dividend for the quarter vs.

21 sen in 4QFY22, contrary to our expectation.

YoY, MBMR’s FY23 revenue rose 5% driven by: (i) strong sales from vehicle distribution (+6%) due to robust demand for Perodua, Volvo and Volkswagen vehicles, as well as Daihatsu commercial vehicles on the introduction of new models, and (ii) a marginal top line increase at its auto parts manufacturing division. Its core net profit surged by a sharper 36% driven largely by a higher share of profits from associates (+34%) driven by strong a sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (+17% to 330,325 units).

QoQ, MBMR’s 4QFY23 revenue surged 13% on full utilisation of production capacity at its auto parts plant to cope with strong year-end demand. Its core net profit soared by a steeper 30% driven by a higher share of profits from associates (+22%) on a strong sales volume at 23%- owned Perusahaan Otomobil Kedua Sdn Bhd (+10% to 97,098 units).

Forecasts. We raise our FY24 net profit forecast by 5% to reflect higher profit contributions from 23%-owned Perodua vehicle maker Perusahaan Otomobil Kedua Sdn Bhd. We also introduce FY25F net profit of RM286.5m (+1%). We cut FY24F NDPS to 40 sen (from 49 sen).

Valuation. Correspondingly, we raise our TP by 5% to RM5.80 from RM5.50 based on unchanged PER of 8x on FY24F EPS which is at a discount to the auto sector’s average forward PER of 11x given its smaller scale, and business model which is skewed toward auto dealerships compared to other players which are more into auto manufacturing. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like MBMR for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of 120k units (almost half of its CY24 target sales of 340k units), (ii) being a good proxy to the mass-market Perodua brand given that it is the largest dealer of Perodua vehicles in Malaysia, as well as its 23% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles, and (iii) its attractive dividend yield of about 9%. Maintain OUTPERFORM.

Risks to our call include: (i) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation and subsidy rationalisation, (ii) persistent disruptions (including chip shortages) in the global automotive supply chain, and (iii) persistent high cost for materials in auto parts manufacturing.

Source: Kenanga Research - 29 Feb 2024