MBM Resources - Proton Preve bookings hit 11,310 units! BUY

- According to the Business Times this morning, the Proton Preve has hit bookings of 11,310 units – quoting DRB-Hicom Bhd Managing Director Datuk Seri Khamil Jamil. This is a strong climb versus 4,893 bookings registered in April, and circa 1,000 units in March, a month before its official launch on 16^th  April. Proton had earlier set a sales target of 4,000-5,000 units/month for the Preve.

- At a planned production rate of 5,000 units per month – the bookings imply circa 2 months waiting list. However, based on MAA production statistics, Proton only manufactured 1060 units of the Preve in April. We understand there were technical issues at production lines which had since been resolved and as such, would expect sales of the Preve to show significant improvement in upcoming May 2012 numbers.

- The strong growth in bookings for the Preve is a positive and is a strong earnings catalyst for Hirotako, which is a key supplier of safety systems (seatbelts and airbags) for Proton. Hirotako is estimated to contribute 44% to MBM’s core operating profit (FY12F). 

- Our projections currently model in very conservative Preve sales of 23,600 units for 2012, or an average monthly sales of 2,950 units (Preve was launched mid April). The strengthening bookings for the Preve suggests upside to our forecasts. We also gather that Proton’s overall sales improved to 14,057 units in May (+40% MoM, flat YoY).

- On top of this, the Preve generates higher revenue per car set for Hirotako –at an average RM1000-1100/car set. Hirotako on average generates  revenue per car set of just over RM900 for supplies to Proton currently (ex-Preve), on our estimates. 

- We re-affirm our BUY rating on MBM at unchanged SOP derived fair value of RM3.60/share. Our valuation implies a conservative 9x FY12F earnings, at a 10% discount to sector average PE of 10x. 

- Key catalysts in the near-term: (1) Newsflows on expansion into vehicle assembly within the next 6 months. (2) Stronger than expected performance from Hirotako given improving Preve sales;  (3) Undervalued stake in Perodua – implied valuation of 7x FY12F earnings.  

Source: AmeSecurities