MBM Resources - Below expectations

Period  4QFY12/12MFY12

Actual vs. Expectations  The group reported a lower-than-expected 12MFY12 net profit of RM135m, which missed our estimate by 11% and that of the consensus by 7%.

Dividends  A second tax exempt interim DPS of 3 sen was declared for the quarter, bringing the total DPS for FY12 to 6 sen.

Key Results Highlights  QoQ, net profit dropped 17% on lesser contribution from the manufacturing division due to lower production volumes as car manufacturers adjusted for their year-end stocks.

 YoY, the 4Q12 net profit of RM30m grew 12% backed by higher passenger vehicle sales and stronger contribution from associates (+12%). The manufacturing division generated the highest PBT contribution of RM16m, a four-fold increase, due to higher production volumes from the major car makers. PBT from the motor trading division slid 4% as a result of lower margins following the phased out of Daihatsu Delta.

 FY12 net profit rose 12% YoY largely on better sales and performance from its manufacturing (auto components and vehicle body building) division. At the operating level, profit from the manufacturing division jumped more than fivefold due to the inclusion of Hirotako’s earnings coupled with increases in demand and production.

Outlook  Despite a competitive operating environment, we believe that there is ample room for the group to grow especially in its manufacturing division.

 Construction of the group’s new alloy wheel plant has been completed and it will start its commercial production by 2Q2013.

Change to Forecasts  Due to the lower-than-expected FY12 results, we have trimmed our FY13-14 earnings forecasts by 9-10% by factoring in a lower margin assumption for the motor trading division.

Rating   Maintain MARKET PERFORM

 Due to the less attractive total return of only 5%, we are maintaining our Market Perform rating.

Valuation  Following our earnings revision, we have lowered our target price to RM3.40 based on 9x FY13 adjusted EPS of 37.7 sen from RM3.68 previously.

Risks  Uncertainty on the outcome of the General Election may weigh down consumer sentiments.

Source: Kenanga