MBM Resources - Associate Disappoints

While topline numbers were largely in line on higher vehicle sales, MBM’s 9MFY12 earnings missed our estimates, accounting for only 65% of our full-year forecasts. This shortfall is largely attributed to lower profits from its associate, which we had been overly optimistic about earlier. As such, we reduce our earnings for FY12 and FY13 by 18% and 9% respectively. Maintain BUY but at a lower FV following the earnings cut. Our new FV, which is based on sum-of-parts, is revised down to RM4.23 from RM4.76.

Below expectation. While topline numbers were largely in line on the back of higher vehicle sales, MBM’s 9MFY12 earnings of RM105m missed our estimates, accounting for 65% of our and consensus’ full-year forecasts. The 3Q earnings were flat although qo- q numbers improved across the board. The lower-than-expected profit was due to the earnings shortfall from its associate stake in Perodua as tighter landing guidelines hit Viva sales. We suspect Perodua’s earnings upside was buoyed by the appreciating JPY against the RM.

Limited impact from dual airbag policy. We note that the dual airbag policy had not given much boost to earnings as we reckon that the overall volume were dragged by lower production output from Proton vehicles. With Proton partnering with Honda, we hope that this would drive volume growth over the longer term.

Trimming estimates on associates. We maintain our earnings and revenue projections for MBM’s subsidiaries but reduce earnings contribution from its associates given that our earlier projections may have been too optimistic. With a reduction in associate earnings forecasts by 19%/12%/21% for FY12/FY13/FY14 respectively, our overall bottomline estimates on MBM has consequently been cut to 18% and 9% for FY12-FY13.

Maintain BUY. While earnings has disappointed over the past two quarters, we anticipate encouraging outlook ahead. Over the longer term, MBM will morph into an integrated automotive group with exposure across various vehicle segments and its supply chain. Maintain BUY but at a lower FV following the earnings cut. Our new FV, which is based on sum-of-parts valuation, is revised down to RM4.23 from RM4.76.

Source: OSK