Thursday 28 Mar 2024
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KUALA LUMPUR (Nov 19): HLIB Research has downgraded its call on auto parts maker MBM Resources Bhd to "Hold", and has also cut its financial year ending Dec 31, 2015 (FY15) earnings forecasts for MBM by 34.8%.

MBM saw its net profit for the third quarter ended Sept 30, 2015 (3QFY15) fall 66.8% to RM8.62 million or 2.21 sen a share, from RM26.01 million or 6.66 sen a share a year ago, mainly due to lower contributions from its joint venture with Autoliv Hirotako Sdn Bhd and its associates.

Revenue for 3QFY15 dropped 2.8% to RM411.18 million, from RM423.09 million in 3QFY14, due to lower sales of continental makes of higher value, despite better overall volume sales.

In a note today, HLIB said that overall, MBM’s group earnings before interest and tax remained low at RM2.3 million for 3QFY15, due to continuous disappointing sales volume for Federal Auto Holdings Bhd (Volvo, Mitsubishi and Volkswagen) and Daihatsu (Malaysia) Sdn Bhd (Hino and Daihatsu), on weakened consumer and business sentiments since 2014.

The research house went on to say that MBM’s automotive components remained loss making despite higher volumes, as Oriental Metal Industries (M) Sdn Bhd (OMI) Alloy Wheel incurred higher operational costs related to capacity expansion and higher input costs due to the weak ringgit, and is only expected to breakeven in 2016.

“Contribution from associate Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and Hino Motors Ltd dropped significantly to RM13.2 million in 3QFY15, from levels of RM30 [million] to RM35 million per quarter, on weakened ringgit and lower sales volume of Hino, which dropped 37.9% year on year and 41% quarter on quarter.

“We believe there are provisions or forex translation (non-cash), which has dragged the performance of these associates,” said HLIB.

The research house added that JV contributions from Autoliv also dropped further to RM2.7 million, from levels of RM5 million per quarter in 3QFY15, on the back of lower production deliveries, due to lower demand from Proton and also the weak ringgit.

Lower margin assumptions, as well as the weak ringgit and higher distributional costs, has caused HLIB to cut its earnings forecast for MBM in FY16 by 19.8%, and by 19.1% for FY17.

The research house downgraded its call on MBM to "Hold", with a lower target price of RM3, from RM3.45 previously. At 11.11 am today, there was no trading activity for MBM shares.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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