MBM Resources - Strong QoQ continues (Results Note)

Price: RM2.40

Target Price: RM2.95

Recommendation: BUY



· 9M09 results below expectations. 9M09 net profit of RM45.8m accounted 70% of consensus and 60% of our forecast, underpinned mainly by lower-than-expected associates’ contribution.

· YoY, 9M09 net profit was recorded substantially lower by 54.5% due to: (1) 6.6% drop in revenue on lower vehicle sales (-7.5% YoY); (2) EBIT declined by 55.9% hampered by Yen appreciation; and (3) 46.8% lower in associates’ contribution (Perodua unit sales: -5.8%; Hino sales unit: -1.95).

· QoQ, 3Q09 revenue grew 11.8% on higher vehicle sales across all brands and stronger sales by the manufacturing operations. EBIT margin remains stable at 3.7% due to stable Yen against RM. Consequently, net profit grew a significant 61.3% to RM22.5m on the back stronger associates’ contribution due mainly to higher Perodua sales by 21.5%.

· YoY, 3Q09 revenue declined by 3.1% due to lower vehicle sales while net profit decreased by 30% mainly on the back of compressed operating margin due to stronger Yen : RM. EBIT fell by a large 49.7% to RM11.2m and the EBIT margin was reported lower to 3.7% from 7.1%.

· Nevertheless, MBM’s cash position improved to RM0.43/share from RM0.29/share QoQ, on stronger operating cash flow generated. MBM’s NTA/share also improved to RM3.50 from RM3.43 QoQ. No dividend is declared and we expect gross DPS of 10 sen and 12 sen for FY09 and FY10, respectively. An interim dividend of 3 sen was declared in 2Q09.

· We tweaked lower our FY09 net estimate by 21.6% to RM63.1m due mainly to of higher-than expected associates’ contribution (+17%) imputed previously. Subsequently, we are also revising lower our FY10 net estimate by 11% to RM90.5m. However, we will expect the stabilised Yen, improved sales volume and better consumer sentiment will continue to underpin MBM’s earnings. The Perodua MPV expected on 23 Nov 2009 will contribute to FY10’s numbers with an estimate of 30,000 units sales.

· Upgrade to BUY, Target Price at RM2.95 based on 8x PER to FY10 EPS of 36.9 sen. We ascribed lower PER of 8x – 20% discount to the industry’s PER of 10x mainly due to stock illiquidity of the counter. Although sales volume is likely to record lower at year-end, we believe that the improved sentiment in the auto sector (and the new Perodua MPV), higher sales volume target next year and MBM’s strong fundamentals are key catalysts we are upgrading MBM. The group’s strong fundamentals are also expected to limit the downside risks.