MBM Resources - Perodua: Exports , capex and listing... BUY

- It was reported in a local daily that Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is looking at commencing exports to South Africa by the end of the year or early next year. A final decision will be made by 3Q12. Besides South Africa, Perodua is also eyeing other emerging markets to achieve its targeted 20,000 export units by 2015. The group aims to export 10,000-11,000 cars this year in existing markets such as the UK, Mauritius, Singapore, Nepal, Fiji and Sri Lanka. These markets currently contribute just under 5% of total group sales. 

- On the domestic front, Perodua has set aside RM50mil as capex to help increase new vehicle sales. The group also aims to boost its spare parts and service business by setting up new sales and service centres, coupled with body and paint workshops. Perodua has set a sales target of 188,000 units this year (2011: 180,000), which should be driven by full- year contribution of the new MyVi. 

- While there are currently 172 Perodua outlets nationwide, Perodua only operates 30% of them. It aims to grow its own branch network as well as grow its dealership network. MBM should benefit from this move as it owns a direct 20% stake in Perodua and at the same time, operates 17 Perodua dealerships nationwide. MBM’s dealerships account for close to 10% of Perodua’s total sales. 

- Separately, Perodua indicated that it is not looking to list on Bursa Malaysia given that it has sufficient cash to meet capex needs. We estimate that Perodua attains up to RM1bil net cash currently. The group pays out 50%-60% of earnings as dividends to shareholders. However, we would note that Perodua had in the past indicated of plans to launch its own models in the next few years. Perodua will be involved in upper body and interior design while platforms and engines will still be sourced from Daihatsu. 

- The move towards own models could see capex increase significantly – by RM250-RM300mil for every new model. Listing asides, we would not rule out a consolidation of local shareholding in Perodua. We note that shareholding in Perodua is inefficient – there is no single controlling shareholder that can consolidate Perodua’s cash flows and huge net cash position. Furthermore, MBMs’ stake in Perodua continues to be deeply undervalued – implied valuation of MBM’s stake in Perodua is 7x (FY12F PE), while UMW is trading at close to 13x. Maintain BUY on MBM with an unchanged fair value of RM5.80/share.

Source: AmeSecurities