This article first appeared in The Edge Financial Daily on February 18, 2020

MBM Resources Bhd
(Feb 17, RM4.02)
Maintain buy with an unchanged target price (TP) of RM4.55: Last week, Proton released its completely knocked down (CKD) X70 pricing. The CKD X70, available in four variants, is priced at RM94,800 to RM122,800. Though the exterior is pretty much similar to the complete built-up (CBU) variants, the CKD X70 entails a new Volvo-Geely-developed seven-speed dual clutch transmission, raising torque to 300 newton metres (Nm) from 285Nm.

The CKD X70 is only between RM1,000 and RM5,000 cheaper compared to the CBU variants’ — essentially just a 1% to 5% drop. We opined that the marginal drop in pricing for the CKD X70 reduces the risk of market share loss for Perodua, whose Aruz model, also a C-segment sport utility vehicle (SUV), is at sub-RM80,000 price points, maintaining a comfortable gap between the two national cars’ C-segment SUVs.

While Proton’s upcoming B-segment SUV, the X50, may be priced closer to the Aruz, both models offer distinctly different functionalities as the Aruz is a C-segment seven-seater, value people carrier, and the X50 likely a five-seater SUV, much smaller in size and likely given a premium touch. We reckoned the X50 is more likely to take off a share in the B-segment non-nationals rather than Perodua.

Perodua is also expected to launch its B-segment SUV, possibly in the second half of 2020. The D55L, reported to come off the Daihatsu Rocky/Toyota Raizer platform, is likely positioned just below the Aruz at between RM70,000 and RM80,000. For now, we forecast a 1.6% year-on-year growth to 245,000 units for Perodua’s FY20 total industry volume.

Our “buy” call on MBM Resources Bhd is reaffirmed with an unchanged TP of RM4.55. At just seven times FY20 forecast earnings coupled with an attractive 6% yield, MBM remains a cheap proxy to Perodua’s volume expansion, the spillover on its parts manufacturing and Perodua dealership units.

Key catalysts are the launch of Perodua’s new B-segment SUV in FY20 forecast, a recovery in industry production driven by the new national car launches, the sale of its wholly-owned subsidiary OMI Alloy (M) Sdn Bhd assets and higher dividends on an underleveraged balance sheet. — MIDF Research, Feb 17