MBM Resources - Preve bookings picking up - a boon for Hirotako BUY

By Am Research
11 June 2012


• According to a report in the Financial Daily this morning, sales numbers for the Proton
Preve has climbed strongly since May. As of June 6th, it is said that bookings for the Preve (launched April 16th) have exceeded 10,000 units, which is a sharp increase over a reported 4,000 bookings for the model at the beginning of May.
• Sales during the first three months following the launch of a new model are usually
strongest. However it is said that Preve “disappointed’ with sales of only 2,699 units in May
vs. management’s target of 4,000 units/month.
• To be fair, we understand there were production issues – technical problems related to lines
which caused production slowdown, though this has been rectified recently. We think this is
one of the key factors causing low booking rates – as sales or incentives were managed to
match actual production capability and avoid excessively long waiting periods which could
deter buyers from finalising purchases. Underpinning our opinion, the article also indicated
that Preve buyers need to wait for up to two months despite the low booking rates.
• The improving bookings for the Preve are a positive and are 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.

BUY

Price: RM3.08
Fair Value: RM3.60


[Source]

MBM Resources- As Anticipated- Hold

By Maybank IB Research
25 May 2012

Maintain HOLD, TP at MYR2.83.  1Q12 results were on track. While
the auto sector is in recovery mode and MBM’s long-term strategic
plans look promising, we reckon most of these positives are priced in.
Our target price (ex-rights and bonus) pegs MBM at 7x FY13 EPS.  

Results within expectations. Reported 1Q12 net profit of MYR41m
(+58% QoQ, +7% YoY) contained a MYR5m gain from the sale of a
property under 78%-owned Oriental Metal Industries (OMI). Excluding
the one-off item, MBM’s core net profit of MYR36m (+39% QoQ, -6%
YoY) accounted for 23% of our full-year forecast, in line, considering
that 1Q12 is perceived to be the weakest quarter of the year. No
dividend was declared in 1Q12. MBM’s net gearing level was 19% in
Mar 2012 versus 16% in Dec 2012.

Hirotako, OMI and associates led growth.  Underlying QoQ profit
growth was driven largely by: (i) higher EBIT contributions from its auto
components division (+619%), as recently-acquired Hirotako’s results
were fully reflected from Jan 2012 and OMI reported an 11% sales
growth, and (ii) stronger associate profits (+12%). This was offset by
weaker EBIT contribution from the motor vehicle division (-18%),
impacted by a 15% drop in DMMS Perodua vehicle sales and higher
costs incurred for the building and upgrading works at its dealership
networks for VW and Hino.

We are keeping our forecasts unchanged.  MBM aims to re-jig its
earnings profile for a more balanced contribution from its core
businesses: manufacturing, motor trading and associates. Current
earnings are heavily reliant on 23%-owned  Perodua. MBM targets
pretax profit contributions from  associates, manufacturing and motor
trading to be at a more balanced 46:36:17 ratio in 2012 (2011: 67:9:24).

High planned capex will likely compromise dividend payments.
MBM plans to spend about MYR250m over 2011-15 (2.4x the capex
spent over 2006-10) with the bulk to be spent on: (i) its alloy-wheel
manufacturing plant (OMI: RM103m), and (ii) expansion of the 3S
network dealerships (i.e. VW; RM20m per network). We think the high
capex will likely compromise dividend payments. We forecast a lower
dividend payout of 10% of net profit for the next three years.


Share price: MYR2.83
Target price: MYR3.15

[Source]

MBM Resources- Perodua: Exports , capex and listing... BUY

By AmResearch

10 Apr 2012

- It was reported in a local daily that Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is looking at commencing exports to South Africa by the end of the year or early next year. A final decision will be made by 3Q12. Besides South Africa, Perodua is also eyeing other emerging markets to achieve its targeted 20,000 export units by 2015. The group aims to export 10,000-11,000 cars this year in existing markets such as the UK, Mauritius, Singapore, Nepal, Fiji and Sri Lanka. These markets currently contribute just under 5% of total group sales. 

- On the domestic front, Perodua has set aside RM50mil as capex to help increase new vehicle sales. The group also aims to boost its spare parts and service business by setting up new sales and service centres, coupled with body and paint workshops. Perodua has set a sales target of 188,000 units this year (2011: 180,000), which should be driven by full- year contribution of the new MyVi. 

- While there are currently 172 Perodua outlets nationwide, Perodua only operates 30% of them. It aims to grow its own branch network as well as grow its dealership network. MBM should benefit from this move as it owns a direct 20% stake in Perodua and at the same time, operates 17 Perodua dealerships nationwide. MBM’s dealerships account for close to 10% of Perodua’s total sales. 

- Separately, Perodua indicated that it is not looking to list on Bursa Malaysia given that it has sufficient cash to meet capex needs. We estimate that Perodua attains up to RM1bil net cash currently. The group pays out 50%-60% of earnings as dividends to shareholders. However, we would note that Perodua had in the past indicated of plans to launch its own models in the next few years. Perodua will be involved in upper body and interior design while platforms and engines will still be sourced from Daihatsu. 

- The move towards own models could see capex increase significantly – by RM250-RM300mil for every new model. Listing asides, we would not rule out a consolidation of local shareholding in Perodua. We note that shareholding in Perodua is inefficient – there is no single controlling shareholder that can consolidate Perodua’s cash flows and huge net cash position. Furthermore, MBMs’ stake in Perodua continues to be deeply undervalued – implied valuation of MBM’s stake in Perodua is 7x (FY12F PE), while UMW is trading at close to 13x. Maintain BUY on MBM with an unchanged fair value of RM5.80/share.

Price: RM4.91

Fair value: RM5.80

[Source]

AmResearch: Buy SIME and MBMR

By AmResearch
5 Apr 2012

MBMR:
Price-RM4.79
Fair value- RM5.80
[Source]

SIME:
Price- RM9.88
Fair value- RM12.30
[Source]