MBMR's 9MFY24 results met our expectation. Its 9MFY24 core net profit rose 14% on favourable sales mix skewed toward higher- margin new models, and strong sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd. We anticipate a stronger quarter ahead on year-end promotions and fulfilment of Perodua backlog of more than 100k units. We raise both our FY24-25F net profit by 5% each, lift our TP by 5% to RM6.80 (from RM6.50), and maintain our OUTPERFORM call. The stock offers attractive dividend yield of about 7%.

MBMR's 9MFY24 core net profit met our expectation at 77% of full-year forecast, but beat market expectations at 82% of the full-year consensus estimate. It declared a second interim NDPS of 7.0 sen and a special NDPS of 22.0 sen, leading to a total final NDPS of 45.0 sen for FY24 vs.

39.0 sen in FY23, above expectations. Thus, we raise our NDPS estimate to 45.0 sen from 40.0 sen.

YoY, its 9MFY24 revenue rose 6%, driven by strong sales from vehicle distribution (+8%) due to robust demand for Perodua on the introduction of new model and fairly decent demand at its new Jaecoo dealership which just started in 3QFY24. This more than offset: (i) lower demand for Volvo, Volkswagen vehicles, and Daihatsu commercial vehicles due to intense competition in the non-nationals space, and (ii) lower production volume by auto parts manufacturing division (-4%) due to a shift towards lower volume, but higher margins new models.

Its core net profit rose 14% on favourable sales mix skewed towards higher margins new models and strong sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (+12% to 260,361 units).

QoQ, MBMR's 3QFY24 revenue rose 12%, driven by attractive year-end promotion as well as more vehicles allocation received as the biggest Perodua dealership. This was despite the plant closure of Perodua manufacturing in September 2024. Its core net profit soared by 29%, driven by higher share of associate contributions (+30%) on higher sales volume at 23%-owned Perusahaan Otomobil Kedua Sdn Bhd (+8%), as well as better margins on new models.

Forecasts. We raise both our FY24 and FY25 net profit by 5% as we anticipate a stronger quarter ahead arising from higher: (i) sales volume on the usual year-end promotion, and (ii) profit contributions from 23%- owned Perodua vehicle maker Perusahaan Otomobil Kedua Sdn Bhd on fulfilment of backlog of more than 100k units. We also expect higher vehicles demand especially for the affordable market in FY25.

Valuation. Correspondingly, we raise our TP by 5% to RM6.80 from RM6.50 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 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 7%. 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 - 26 Nov 2024