• Still NEUTRAL, with new MYR4.10 TP from MYR4.05, 8% downside and c.11% FY24F yield. FY24 core profit was in line with our expectations but exceeded Street’s. Though a more subdued FY24 outlook is anticipated, we recommend investors to retain their positions in MBM Resources due to its attractive yields. While the stock is relatively cheaper vs peers, we believe the valuation is fair as it is trading at +1.5SD above the historical mean.

• MBM's 4Q23 core net profit of MYR98m brought FY23 earnings to MYR306m, which largely met ours but was above Street’s estimates at 105%/110% of forecasts. MBM did not declare any dividends in conjunction with the 4Q23 results.

• Results highlights. 4Q23 core earnings rose 29% QoQ (+71% YoY) with both motor trading and auto parts manufacturing recording higher operating profits at +29% and +9% QoQ. Overall, Perodua vehicle sales in Malaysia increased 10% QoQ while MBM’s associates’ contributions rose by a larger 21% QoQ, likely due to easing costs as well as higher economies of scale achieved during the quarter.

• Look out for final dividend. MBM’s YTD DPS of 39 sen represents a 50% dividend payout ratio (DPR) – below its FY22 75% DPR as well as dividend policy to pay out at least 60% of earnings. Therefore, we believe a final dividend is very likely, considering its strong net cash position as well as little need for capex spending. We anticipate a 17 sen final dividend to be announced sometime in Apr/May 2024, which translates to 72% payout ratio (in line with its dividend policy) or c.13% FY23 yield.

• Outlook. In FY24, we believe the earnings will decrease meaningfully (-23% YoY), mainly due to anticipated lower Perodua volumes. After two years of record-high sales volumes, we think Perodua sales will weaken to 250k units (from 331k in 2023) given the lack of catalysts on top of declining backlogs, from 190k units in May 2023 to 128k units at end-Dec 2023. Regardless, we believe Perodua will continue to be the main contributor of MBM’s earnings at 72% of FY24 PBT.

• We made minimal changes to our FY24-25F earnings of +1% post housekeeping adjustments. We have previously taken into account the anticipation of lower contribution from Perodua, due to weakening sales volumes.

• We maintain our call with a new TP of MYR4.10, based on FY24F 6.5x P/E. Although we are forecasting for softer vehicle sales and earnings in FY24, we believe investors should continue to hold the stock for its attractive FY24- 25F yields of 11% and 9%.

• Key downside risks include lower-than-expected orders and deliveries, lower-than-expected dividend payout ratios, and resurgent supply chain constraints. The converse represents the upside risks.

Source: RHB Research - 29 Feb 2024