• Maintain NEUTRAL with higher MYR6.45 TP (from MYR5.95), 0% upside. We came away from MBM Resources’ 9M24 analyst briefing feeling more bullish on its major earnings contributor Perodua’s outlook. While we anticipate higher YoY earnings for MBM this year, we believe valuation is now fair as share price has risen 52% YTD. However, we advise investors to hold their positions given its handsome c.8% FY25F yield.

• Another record-breaking year likely for Perodua. Management is optimistic of Perodua posting another record-breaking sales volume this year. This is following its YTD-Oct sales delivery of 294k units (+10% YoY). This translates to Perodua needing 36k units in sales for the remaining two months to exceed 2023’s volume of 330,325 units, which we believe is achievable. On top of that, current backlogs remain at around four months, which translates to c.100k units. We maintain our 2024 Perodua sales delivery assumption of 345k units.

• Minimal contribution from Jaecoo anticipated. MBM managed to sell only 44 units of Jaecoo J7 in 3Q24. Note that Jaecoo made its local debut in July with its first delivery in August. MBM is planning to set up a 3S/4S centre in Segambut, which would cost c.MYR7-8m, on top of an existing showroom at its own office tower. We think Jaecoo is unlikely to contribute significantly to MBM’s earnings, considering the intense competition within the SUV sub- segment for non-national marques.

• Outlook. Coming into FY25, we should expect two new models from Perodua. The first is its most-anticipated EV, which will likely be a hatchback priced at sub-MYR100k, while another model is also set to be launched next year, rumoured to be a B-segment internal combustion engine (ICE) SUV. Jaecoo, on the other hand, is planning to launch its C9 this year, with the plug- in hybrid EV (PHEV) version of J7 to be launched in 2025. Management also highlighted that there will be new launches from Volvo as well next year, while new models from Volkswagen seem unlikely.

• Forecasts. We raise our FY25F earnings by 8% after revising our Perodua 2025 sales volume assumption upwards from 315k to 330k to take into account the current backlog as well as new model launches. We made no changes to our earnings forecasts for FY24 and FY26.

• Still NEUTRAL with a higher MYR6.45 TP, based on 8.5x FY25F P/E, which is in line with its local peers. Our TP includes a 2% ESG discount based on its ESG score of 2.9. We believe the stock is fairly valued, while its sector-high dividend yield should serve as an incentive for investors to hold this counter. Key downside risks include lower-than-expected orders and deliveries, higher-than-expected costs, and resurgent supply chain constraints. The opposite represents upside risks.

Source: RHB Securities Research - 27 Nov 2024