MBM Resources Berhad (MBM) conducted an analyst briefing yesterday following the release of its 2QFY24 results. Management remains cautiously optimistic about the outlook for 2025, as the automotive sector is navigating a complex landscape of regulatory changes, strategic shifts, and evolving market dynamics, which introduce considerable uncertainty. Despite this, as a proxy for Perodua, MBM will continue leveraging the company’s growth in 2024. However, we believe the share price has run ahead of its fundamentals and that most of the positive news have already reflected in the share price. Thus, we maintain a Sell rating on MBM, with an unchanged target price of RM4.70 per share, based on a CY25 PER of 7x.

Financial Overview

Motor Trading and Assembly: This segment reported a 30.1% YoY increase in PBT for 2QFY24, primarily due to higher sales and production volumes from associates. Management indicated that another plant shutdown is planned for September, which will only affect Perodua. Overall, PBT for 1HFY24 rose by 12.3% YoY to RM149.0mn, aligning with revenue growth.

Auto Parts Manufacturing: 2QFY24 PBT rose by 25.8% YoY to RM12.5mn, primarily driven by strong production demand and the absence of certain lump sum cost recovery claims from vendors recorded in the same period last year. Additionally, 1HFY24 PBT also improved compared to the previous year, supported by better margins due to high production demand and sustained cost efficiencies. Meanwhile, service throughput also strengthened, reaching 63,709 units (+4.2% YoY).

Leveraging on Perodua Growth

As a proxy for Perodua, MBM will continue leveraging the company’s growth in 2024. Management indicated that Perodua is on track to achieve its 330k unit sales target for 2024. Perodua currently has an outstanding order book of approximately 100k units, though this represents a significant decrease from around 200k units a year ago. Meanwhile, management highlighted difficulties in reaching sales targets for some brands under its wholly owned subsidiary, Federal Auto Holdings Berhad (FAHB) due to current market conditions.

Jaecoo's Contribution Anticipated to Be Minimal

The recent launch of Jaecoo J7 model in Malaysia has received a positive response, with a few thousand new bookings. As one of the dealers, MBM has delivered approximately 50 units. However, management anticipates that the contribution from Jaecoo will be minimal at this stage.

Uncertain Outlook for 2025

Management indicates that the outlook for the auto sector in 2025 is uncertain due to various influencing factors. Rising competition from both established players and new entrants could reshape market dynamics and affect industry performance. Additionally, potential shifts in consumer preferences and purchasing behaviour may affect the sector's trajectory. The impact of expected salary hike on vehicle purchasing trends is also uncertain. As a result, the overall outlook for the auto sector in 2025 remains highly fluid and difficult to predict.

Valuation

No change to our earnings forecast. Maintained Sell on MBMR with an unchanged TP of RM4.70/share, based on CY25 PER of 7x. We believe the share price has moved ahead of its fundamentals and exceeded the NTA/share, which seems unjustified.

Source: TA Research - 30 Aug 2024