MBMR’s 1QFY24 results met our forecast but beat market expectations. Its 1QFY24 core net profit was flattish as strong vehicle sales were offset by higher cost (including staff annual increment and bonuses). We maintain our forecasts, TP of RM5.80 and OUTPERFORM call. The stock offers attractive dividend yield of about 8%.

MBMR’s 1QFY24 core net profit met our expectation at 28% of full-year forecast, but beat market expectations at 32% of the full-year consensus estimate.

YoY, its 1QFY24 revenue rose 11% driven by strong sales from vehicle distribution (+14%) due to robust demand for Perodua, Volvo and Volkswagen vehicles, as well as Daihatsu commercial vehicles on the introduction of new models, partially negated by auto parts manufacturing division (-4%). However, its core net profit was flattish due to higher operating expenses from staff annual increment and performance bonuses. Similarly, despite a strong sales volume at 23%- owned Perusahaan Otomobil Kedua Sdn Bhd (+9% to 85,896 units), its contribution was flattish, similarly, due to staff annual increment and performance bonuses

QoQ, MBMR’s 1QFY24 revenue eased 12% due the low season as well as the closure of auto parts manufacturing plant on extended festive holidays. Its core net profit fell by a steeper 18% driven by a lower share on lower associate contributions (-20%) on a weaker sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (-12%), similarly, due to plant closure during festive holidays.

Forecasts. Maintained.

Valuation. We also maintain our TP of RM5.80 based on 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 over 100k 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 8%. 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 - 28 May 2024