MBM Resources - Perodua Takes First Steps Into Electrification

Date: 29/08/2022

Source  :  RHB-OSK
Stock  :  MBMR       Price Target  :  3.00      |      Price Call  :  HOLD
        Last Price  :  3.46      |      Upside/Downside  :  -0.46 (13.29%)

  • Maintain NEUTRAL and TP of MYR3, 12% downside with 6.5% FY23F yield. MBM Resources’ post-earnings briefing reaffirms our view that FY22 will likely be a record-breaking year for Perodua, before macroeconomic headwinds come to the fore in FY23. Aside from working with vendors to resolve the foreign labour shortage, planning production increases, and striving to fulfil large backlog orders, Perodua is also in the early stages of exploring its first hybrid electric vehicle (HEV), potentially to be unveiled in 2024. Our NEUTRAL rating is premised on a softer FY23F.
  • Orders are gradually improving. According to management, orders across the group in July were 20-30% lower than the average monthly orders received in 1H22 (c.33k). In July alone, Perodua received 24k new orders, with 9k orders for the new Alza. As at 18 Aug, the all-new Perodua Alza has received over 41k bookings since orders begun on 23 June. MoM, August orders improved and the current Perodua order backlog stands at 250k, up from end-June’s 200k.
  • Perodua’s production challenges and future plans. Currently, Perodua can produce a maximum of 350k units pa, which translates to close to 29k units per month. In July, Perodua produced 16,959 units, representing a utilisation rate of c.58%, as its component vendors continue to face a foreign labour shortage, which MBM’s management said has not improved since July. Looking ahead, Perodua is looking to increase its production capacity, partially driven by automation, especially for the Alza (current production of 3.5k a month) to cater for the strong demand.
  • Perodua’s first HEV potentially in 2024. Currently, Perodua is studying the development of a hybrid model, with production potentially starting in 2024. MBM’s management believes that with the current high cost of EV batteries, a fully electric Perodua would be too expensive for Perodua’s target customers. As such, Perodua will slowly electrify its models by first exploring the more affordable hybrid options.
  • Management is cautious on FY23, especially given the outlook of higher borrowing costs and inflation, which could disproportionately erode the purchasing power of the lower- and middle-income earners, posing a risk to the sales of the national marques.
  • Post-results briefing, we maintain our forecasts. On dividends, management has said that FY22 dividends will be higher YoY, which are already reflected in our current estimates. As management did not rule out the possibility of another special DPS in FY22 (should there be another one), there is upside risk to our current FY22F DPS of 32 sen.
  • We make no change to our NEUTRAL stock rating and MYR3 TP – based on 6.5x FY23 P/E – as we think that Perodua’s record FY22 is largely in the price, while downside risks may abound next year. Our TP includes a 4% ESG discount, based on its ESG score of 2.8 out of 4.0. Key risks include longer-than-expected supply chain disruptions and weaker-than- expected sales post tax-exemption. The opposites are key upside risks.

Source: RHB Research - 29 Aug 2022

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