- It is
reported in local dailies this morning that MBM will accelerate its planned
capex. The group had earlier announced a RM250mil capex to be spent between 2011-2015. Circa RM50-60mil had
been spent in 2011, while the remaining will now be spent in 2012-2013.
- 70% of
the RM250mil allocation will go towards MBM’s new 1mil wheels/annum alloy wheel
manufacturing plant in Rawang (via 78%-owned Oriental Metal Industries – JV
with Toyotaowned parts making companies). The plant will be ready by year-end
and the initial customer is expected to be Perodua (which is currently
importing 60% of its alloy wheel requirements).
- We
estimate that expansion into vehicle assembly may require a further
RM600-RM700mil capex – assuming an assembly capacity of 60K-70K per annum.
However, MBM will likely embark on multiple JVs to achieve such a volume and
that the partners may acquire a majority stake in the assembly &
manufacturing operations given MBM’s lack of experience in this area. As such,
actual capex to be borne by MBM could be much lower.
- Nonetheless,
we believe MBM will maintain control of vehicle distribution, for which it may largely
bear the capex. MBM is already spending RM75mil (as part of the RM250mil capex)
to expand its dealership network. We believe there will be further expansion
upon MBM securing new JV partners/principals. Each basic sales outlet is
estimated to cost between RM7-12mil.
- Investors’
perception of MBM as a mere investment company (70% of bottomline is derived via
associates Perodua & Hino) has been dragging its valuation for years. The
expansion into vehicle assembly and investments to expand into alloy-wheel
manufacturing underpins a structural expansion of cash flow enhancing core
earnings – which should drive a significant re-rating of the stock. MBM
currently trades at just 7.7x FY12F earnings, while auto manufacturing peers
such as DRB-Hicom, Tan Chong and UMW trade at 11-14x FY12F PE.
- We
re-affirm our high conviction BUY call on MBM, with an unchanged SOP-derived
fair value of RM3.60/share, which implies a conservative 9x FY12F earnings
versus sector PE of 10x. Key catalysts: (1) Newsflows on new JV partners for
vehicle assembly is expected to pick up in the next 6 months; (2)
Stronger-than-expected sales of Proton Preve which drives Hirotako’s earnings.
Source: AmeSecurities
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