Apex Securities anticipates MBM will maintain positive operating cash flow over the next two years.
PETALING JAYA: Apex Securities expects MBM Resources Bhd
’s core earnings for the financial year 2024 (FY24) to taper off year-on-year (y-o-y) and recover mildly by 3.8% y-o-y in FY25, in tandem with the anticipated industry-wide slowdown for the automotive sector.
The forecast is based on core assumptions that Perusahaan Otomobil Kedua Sdn Bhd’s (Perodua) sales momentum will be sustained on the back of new model releases and its strong order backlog, the brokerage firm noted.
Apex Securities said the key contributor to MBM’s pre-tax profit in FY23 stemmed from earnings generated by its associates, primarily from Perodua, constituting 67.9% of total pre-tax profit, followed closely by the motor trading segment, from direct dealerships of Perodua, Daihatsu, Volvo, and Volkswagen, as well as after-sales service (13.9%).
Concurrently, earnings contributions from auto-parts manufacturing and its joint venture with Autoliv Hirotaka Sdn Bhd stood at 6.1% and 5.8%, respectively.
The brokerage firm said in a research report yesterday it favours MBM due to its association with Perodua, which holds a dominant position in Malaysia and has substantial financial reserves, with a net cash position exceeding RM180.9mil.
It also anticipated MBM will maintain positive operating cash flow over the next two years, with minimal capital expenditure of RM6mil-RM9mil.
Apex Securities has initiated its coverage of MBM with a “hold” call with a target price of RM4.35.
“Although we like MBM’s exposure to the national brand and its attractive dividend yield, we believe that the current share price has adequately reflected these positives and the valuation appears fair at present,” it added.
Apex Securities expects MBM to deliver a dividend per share of 38 sen for FY24, assuming a payout of 60% of net profit, which translates into an attractive yield of 8.5%.
“This is likely to garner investment interest from longer-term investors,” the brokerage firm added.
Meanwhile, the brokerage said affordable cars will continue to maintain resilient demand.
“Although Perodua has yet to disclose their sales target for 2024, we expect a slight decline of around 1.5% y-o-y in unit sales to 320,000.
“We believe that our sales target is achievable, considering the uninterrupted production rate which is expected to persist throughout the year, along with Perodua’s significant order backlog exceeding 120,000 units,” it added.
Moving forward, MBM is positioned to ride potential upside from the launch of the new B-segment SUV, the Perodua Nexis in 2024, Apex Securities noted.
The government has also targeted 2025 for national brands Proton and Perodua to introduce electric vehicles (EVs).
In line with the increasing customer acceptance of EVs, Perodua is planning to collaborate with a Japan-based partner to locally assemble EV models, thus positioning itself well in the evolving market.
The high-value goods tax ranging from 5%-10% is also set to be introduced effective from May 2024.
