A strong FY2020 in the horizon for MBM

MBM Resources Bhd’s (MBMR) strong quarterly rebound in its latest financial results is a harbinger that the automotive industry player can continue to post strong earnings in the final quarter of its FY2020.

Hong Leong Investment Bank (HLIB) Research views a strong demand for the group’s products following the Government’s implementation of stimulus plans and sales tax exemptions since mid-June 2020 with associate Perodua having reported sales growth of 182.9% quarter-on-quarter (qoq) and 20.8% year-on-year (yoy).

To re-cap, Perodua has increased its monthly car production to 25,000 units (98-99% of capacity) for the August-December 2020 period in order to meet the current strong demand.

“MBMR has seen positive impact from the ongoing cost tightening measures and new marketing platforms in view of the changing consumer behaviour,” wrote analyst Daniel Wong in a results review.

MBMR saw its net profit notched up 16.5% to RM65 mil yoy for 3Q FY20 (2Q FY2020: loss of RM5.1 mil; 3Q FY2019: RM55.76 mil) on the back of a 16.5% yoy rise in revenue to RM600.45 mil (3Q FY2019: RM515.32 mil)

“We deem the result as above our expectations given the anticipation for 4Q FY2020 to continue reporting strong sales, driven by consumers taking advantage of the automotive sales tax exemptions ending December 2020,” projected HLIB Research.

All-in, HLIB Research maintained its “buy” rating on MBMR with an unchanged target price of RM5.

“MBMR is currently in a net cash position (RM163 mil) with continued earnings and cash flow growth by leveraging onto the strong demand for Perodua models,” added the research house.

Meanwhile, TA Securities Research noted that MBMR’s management is cautiously optimistic on its 4Q FY2020 prospects given tax exemptions and incentives from the Government on passenger vehicles is expected to support car sales until end-2020.

“However, the COVID-19 pandemic would remain as the key risk factor to undermine the group’s performance in the near term,” opined analyst Angeline Chin.

The research house retained its “buy” rating on MBMR but lowered its target price on the company to RM3.53 (previously RM3.62) based on its CY2021 price-to-earnings ratio of nine times.

At 10.55am, MBMR was up one sen or 0.31% at RM3.22 with 887,800 shares traded, thus valuing the company at RM1.26 bil. – Nov 20, 2020

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