Friday 29 Mar 2024
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MBM Resources Bhd
(March 17, RM3.28)
Maintain buy with an unchanged target price of RM3.85.
We continue to like MBM Resources as our top pick in the auto sector given the: i) full-year sales contribution of Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) newly-launched Axia and facelifted Myvi models; ii) potential recovery from its Oriental Metal Industries (M) Sdn Bhd (OMI) alloy wheel plant; and iii) increased efficiencies from new manufacturing plants (Hino Motors [M] Sdn Bhd, Perodua). 

To recap, MBM’s 2014 core earnings of RM114.2 million plunged 17.5% year-on-year (y-o-y) which was attributed to: i) lower revenue from its motor trading segment, down 11% y-o-y, due to intense competition which offset higher sales from its auto manufacturing segment, which recorded 16.8% y-o-y growth; ii) high gestation losses for its new Hino and Perodua manufacturing plants, and OMI new alloy wheel plant which amounted to RM50 million versus RM16.5 million loss in 2013; and iii) lower associate contributions from Perodua, down 83.4% y-o-y as it transitioned to the new Axia after gradually phasing out its Viva model in third quarter of financial year 2014 (3QFY14).

Leaving that behind, we expect MBM Resources’ 2015 earnings to improve on the back of increased sales volume from Perodua’s latest A-segment model, Axia and newly-facelifted Myvi, a potential break-even against a loss from OMI’s new alloy wheel plant as it secures more orders, and its ongoing focus on its after-sales service by expanding and upgrading its dealership networks.

We retain our earnings forecasts for FY15 to FY17 and reiterate our “buy” rating on MBM Resources.   MBM Resources remains our top auto sector pick as, in our view, the share price has yet to truly reflect the group’s 21% 2014 to 2016 earnings compound annual growth rate, which is backed by the new Axia and revamped Myvi models, and the softer Japanese yen. 

We also believe that the market has not priced in the potential of its OMI alloy wheel plant breaking even in 2015. Shares of MBM Resources continue to trade at an appealing valuation, at only a 7.7 times of 2016 price-earnings ratio, and offer attractive dividend yields of 4% to 5% for 2015 to 2017. Key risks include worse-than-expected economic slowdown — which could negatively affect business and consumer sentiment, tightening of auto financing that would squeeze car buyers’ ability to borrow, stronger-than-expected competition which could result in margin compression, and unfavourable exchange rates. — Affin Hwang Capital, March 17

MBM_180315

 

This article first appeared in The Edge Financial Daily, on March 18, 2015.

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