This article first appeared in The Edge Financial Daily on August 22, 2019
KUALA LUMPUR: Both the share price and trading volume of MBM Resources Bhd leaped to a record high of RM4 and 10.76 million shares respectively yesterday. The sharp rise in share price and trading volume shows strong evidence of investors’ confidence in the company’s prospects.
Expectations of continued growth in Perusahaan Otomobil Kedua Sdn Bhd (Perodua) car sales, regular dividend moving forward and ceased operations of loss-making OMI Alloy wheel manufacturing have painted a rosy picture of MBM Resources’ outlook.
MIDF Research is expecting Perodua, in which MBM Resources holds a 22.6% stake, to achieve record high sales volume this year and that speaks well for MBM Resources, which holds a 22.6% stake in the second national car firm.
The auto stock is currently on the recommendation list of almost all analysts who track it, in which target prices are between RM4.05 and RM6.35.
For the first half of 2019 (1H19), MBM Resources’ motor trading division posted a revenue of RM973 million (+16% year-on-year [y-o-y]) and a core profit before tax of RM15 million (+27% y-o-y). This was due to favourable demand for Perodua vehicles, namely the Myvi, Axia and Aruz.
Overall, Perodua sold a total of 121,800 units in 1H19 compared with 117,100 units in the previous corresponding period, translating into a 4% y-o-y growth.
MBM Resources posted a net profit of RM74.04 million for the second quarter ended June 30, 2019 (2QFY19), more than double the RM34.55 million a year ago, partly boosted by a one-off RM24.8 million gain in disposals. Revenue grew 15.42% to RM558.05 million, from RM483.48 million last year.
MBM Resources declared a first interim dividend of six sen a share, payable on Sept 19.
Cumulative net profit for the six months ended June 30 (6MFY19) jumped 83.6% to RM123.69 million, from RM67.36 million in the corresponding period last year, while revenue grew 15.15% y-o-y to RM1.08 billion, from RM935.41 million.
“We believe that MBM Resources will continue to shine as a proxy to Perodua as it protracts its position as the leader of market share in the local automotive space.
“We are excited about the group’s future expansion plans either organically or via more joint ventures with established names to further build on its distribution and auto parts business,” said AmResearch.
Apart from better earnings outlook, its new dividend policy of paying out at least 60% of its net profit is adding fuel to the rally on the auto stock.
“The new policy reflects the board’s intention to reward MBM Resources long-term shareholders. We projected dividend payout of 28 sen to 32 sen/share for FY19-FY21, translating into an attractive dividend yield of 7.6% to 8.6%. We note that MBM Resources was already in net cash position of RM88.6 million as at end 2QFY19, with continuous strong dividend pay up from associate Perodua,” Hong Leong Investment Bank said in a research note yesterday.
Although Perodua is sitting pretty currently, it might have to work harder to defend its turf in the longer run as the other national car Proton Holdings Bhd seems to have gotten its act together, given its improved sales.
“In the near term, Perodua will enjoy an edge over Proton. Over time, Proton with the assistance of Geely as it proves itself, in terms of achieving lower defects per unit and improving the quality [of its cars], Proton’s image can only get better from where it is right now,” said RHB Investment Bank Research analyst Alexander Chia.
He added that in 2H20, Proton will be on the verge of launching a rebadged version of Geely’s Binyue (SX11) sport utility vehicle (SUV).
“That [the Geely Binyue (SX11) will compete with the top end of Perodua’s model [that is the Aruz]. I understand that Perodua will be looking into the possibility of making a B-segment SUV, on top of the Aruz.
“When it comes to branding, Perodua’s branding and strength in the market is clearly streaks ahead of Proton. I think Proton still suffers from a lot of bad will that has been built up over the years as a result of selling substandard products,” said Chia.
He noted that Perodua still enjoys sales in excess of 20,000 units a month and that it could easily meet 235,000 cars in 2019.
Chia noted that Proton’s X70 is priced in a segment that Perodua does not compete in, but the facelifted Proton models, such as the Saga and Iriz might have more direct relevance as far as Perodua is concerned.