MBM's alloy wheel plant to break even by 2020

KUALA LUMPUR: Affin Hwang Capital Research is positive that MBM Resources Bhd's alloy wheel plant is on track to break even in 2020.

The research house said OMIA, MBM's wheels and tyre assembly unit, has reported consecutive losses since 2012 due to insufficient volumes, high rejection rates, low selling prices and rising material prices.

It said OMIA has won the contract to suppy wheels for the nee Perodua SUV slated for launch at end-2018. 

"This new contract should lift OMIA’s production volume by 12k units/month to 47k units/month (close to the breakeven level of 50k units/month). 

OMIA is also looking to expand the OEM customer base through active engagement with Proton and Honda."

On the international front, Affin Hwang said the group has signed a cost-plus agrrement with China-based Citic Dicastal, which commands about 23% global market share and 45% in China.

"Under the agreement, CD will utilise c.50% of OMIA’s capacity to supply wheels to Europe (in response of the heavy EU anti-dumping duties on Chinese wheels), India (poor China-India bilateral trade relationship) and Malaysia. 

"In exchange, CD has agreed to provide technical support to OMIA, which could potentially see the plant turn around faster than expected."

The reserch house maintained its buy call on the counter with a higher target price of RM3.27 from RM2.78 previously.