Friday 25 May 2012

MBMR (FV RM4.58 - BUY) 1QFY12 Results Review: Hirotako Saves The Day


MBM’s  decent results  were  in line with our  estimates but beat  consensus’ as margins widened, boosted by airbag maker Hirotako, which achieved economies of scale following new safety rules requiring all national cars to be fitted with at least 2 frontal airbags. We expect the ensuing quarters to be stronger driven by: i) improved sales of Perodua, and ii) higher sales from Volkswagen after the launch of the new Polo sedan. We maintain our BUY call and earnings estimates but cut our SOP fair value to RM4.58 from RM5.34 to reflect risk of weaker Perodua sales. With a 62% upside, our FV implies a PE of 9x vs the sector average of 10x.

Results In line. MBM posted a decent set of results that were in line with our but above consensus estimates, boosted by higher margins from Hirotako, which makes highmargin airbags. The 1Q net profit came in at RM41m (y-o-y: 6.8%, q-o-q: 58%) on revenue of RM543.7m (y-o-y: 32.7%, q-o-q: 0.9%). The numbers made up 21% and 25% of our full-year forecasts respectively. The revenue growth was attributed to the acquisition of Hirotako and higher vehicle sales from Federal Auto, which were up by 9% and 55% respectively. We deem the results in line as we expect the ensuing quarters to be stronger driven by: i) improved sales of Perodua, which was hit by tighter lending by the banks, ii) higher sales from Volkswagen after the launch of the new Polo sedan, which is the German marque’s cheapest product in its line-up.

Margins  fuelled  by Hirotako on economies of scale.  We note that margins were boosted by the high margins from the airbag manufacturing business following the acquisition of Hirotako in 4QFY11. We understand that Hirotako benefited from the economies of scale achieved as production surged when new safety rules  requiring all national cars to be fitted with at least 2 frontal airbags took  effect this year. This led to sales higher  perking up  by 9% y-o-y, although  Perodua  and Proton’s sales combined actually contracted 12% y-o-y.

Maintain BUY.  MBM has completed its  proposed  rights and bonus issue. The rights shares, priced at a discount of 43% to yesterday’s closing price,  gives investors  an opportunity to accumulate more MBM  shares at a discounted price. We maintain our BUY call and earnings estimates but lower our SOP fair value to RM4.58 from RM5.34 previously, which implies a PE multiple of 9x versus the sector average of 10x.  The reduced FV reflects the lower PE multiple of 10x pegged to Perodua’s valuation versus 12x earlier after  incorporating  the risk of  a  limited upside in vehicle sales  after  the implementation of stricter lending guidelines put a dent on lending approval rates. MBM is now trading at an attractive 6x FY12 EPS. We note that the stock has of late attracted new institutional investors such as Tabung Haji and even foreign funds.

Source: OSK

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