MBMR reported core PATMI at RM56.6m for 1QFY22, a strong start for the year. Outlook for FY22 remains exciting with high order backlogs (especially Perodua) while on-going new orders remain encouraging (despite ending of SST exemption by Jun 2022), as the economy fully reopened. Management highlighted that issues of supply chain disruption, increasing raw material costs, high logistic expenses and USD appreciation are still manageable. Maintain BUY on MBMR with unchanged TP: RM5.00 based on 10% discount to SOP of RM5.52. MBMR offers attractive dividend yield of 6.9%-8.8% for FY22-24.

1QFY22 results recap. To recap, MBMR reported a strong core PATMI for starting quarter of the year with RM56.6m, a growth of +20.2% YoY on overall higher group sales volume and improved margins (from cost-cutting measures being implemented since starting of the pandemic). The drop -37.0% QoQ was mainly due to combination of: 1) pent-up and rushed productions and deliveries during 4QFY21, post lifting of lockdown measures; and 2) lower starting inventory at the beginning of the year and shorter working days during 1QFY22.

FY22 outlook. Demand for new cars remained strong with Perodua dealership (DMMS) having order backlog of up to 6 months, while other dealerships have order backlog of up to 2 months. Management indicated the dealerships are still receiving high number of new bookings despite advising the customers of car delivery only after SST exemption ends in Jun 2022. Management believes the strong demand was driven by improving consumer sentiment as the economy fully reopened. The automotive industry is lobbying to the government to further extend the SST exemption until year end, as the industry is currently facing unprecedented supply chain issues, unable to fulfil the surprisingly high backlog orders by June 2022. Nevertheless, the industry may be challenged by the ongoing supply chain disruption, increasing material costs, logistics expenses and RM depreciation against USD. Management guided the direct impact to the group is still manageable with strong support from principal OEMs.

Perodua. Associate Perodua achieved sales volume of 60.2k units in 1QFY22, relatively in line with its record high sales target of 247.8k units (+30.2% YoY). The indicative order backlog of 5-6 months and ongoing encouraging new orders can easily push deliveries until year end. The new Alza replacement model is rumoured to have started taking pre-bookings, while another two updated models will be launched in 2H22 to keep the market excited. Perodua is poised to register record high earnings for the year, promising a potential high dividend payout.

Dividend. The group has paid out a record high 26 sen/share (inclusive of a special dividend of 10 sen/share) or RM101.6m for FY21. With the indicative continued high dividend payout from Perodua and strong earnings of group subsidiaries and JV, as well as disposal proceeds of RM65.5m, we expect another bumper divvy for FY22 (potentially higher than our assumed 22 sen/share). The current net cash position of MBMR group remains healthy at 58.8 sen/share.

Forecast. Unchanged.

Maintain BUY, TP: RM5.00. Maintain BUY on MBMR with unchanged TP: RM5.00, based on 10% discount to SOP: RM5.52. MBMR is currently in a net cash position (58.8 sen/share) with continued earnings and cash flow growth, by leveraging onto the strong demand for Perodua models. MBMR offers attractive dividend yield of 6.9%-8.8% for FY22-24.

Source: Hong Leong Investment Bank Research - 30 May 2022