PETALING JAYA: MBM Resources Bhd had a strong start in the first quarter of financial year 2024 (1Q24), mainly driven by the robust demand for Perusahaan Otomobil Kedua Sdn Bhd (Perodua) cars.
Analysts expect the automotive group to continue leveraging on strong Perodua sales in the coming quarters, as Perodua’s management guided for its sales target to sustain at 330,000 units in 2024 due to higher order backlogs and new launches.
According to Hong Leong Investment Bank (HLIB) Research, Perodua is expected to launch a B-segment sport utility vehicle and another facelift/replacement model in 2024. It also plans to launch a battery electric vehicle model in 2025.
However, the research house said “management remained cautiously optimistic”on the group’s outlook, bearing in mind potential challenges from the high US dollar against the ringgit, global macroeconomic and geopolitical headwinds, as well as the potential fuel subsidy rationalisation effect
In 1Q24, MBM’s revenue rose 11% year-on-year (y-o-y) to RM617mil. The group’s Perodua sales surged 37% y-o-y, outpacing the 9% growth in Perodua’s total industry volume (TIV).
However, group core net profit remained flat at RM80mil, due to lower contributions from the auto parts division on a less favourable product sales mix, and the absence of a lump sum cost recovery from certain original equipment manufacturers.
While HLIB Research maintains a “buy” call on the stock and ascribed a higher target price of RM6.50 (from RM5.40), other research firms are less bullish.
Apex Securities Research, for one, downgraded the stock to a “sell” following the recent surge in MBM’s share price. It has a RM4.46 target price on the stock based on 7.1 times price-earnings to the financial year 2024 (FY24) earnings per share of 63 sen.
“We reckon auto sales may begin to taper off in the second half of 2024 due to uncertainty in the fuel subsidy mechanism, the increase in service tax, the possible implementation of the luxury tax as well as normalisation in order-book replenishment.”
Maybank Investment Bank Research has a “hold” call, while MIDF Research downgraded the stock to a “neutral” rating.
MIDF Research noted that while MBM’s top-line growth was commendable, its bottom line was slowing amid moderating associate earnings growth.
It believes MBM’s risk-reward is fairly balanced at current share price levels, amid peaking momentum and an expected normalisation in TIV.
The stock has risen 42% in the past one year and by 84% since Covid-19. However, MIDF Research said the forecast FY24 dividend yield of 7.2% remains attractive.