KUALA LUMPUR: RHB research expects future earnings growth for MBM Resources Bhd to come from growing its existing business following the official cessation of its alloy wheel business.
"Future earnings growth should be achieved organically through the opening new dealership centres, plugging leakages at its existing centres, and Perodua product expansion," it said in a note.
The research house maintained its buy call on the counter with a higher target price of RM4.20 from RM3.70 previously.
RHB noted that MBM Resources could improve standard operating procesures to minimise leakages as some motor trading employees are redicrecting sales to other dealerships for higher commissions.
It said such leakages are estimated to cost the business 15-20% of sales, whih impact both car sales and after-sales services.
It added that MBM may be opening new branches of its existing brands to grow topline.
Meanwhile, MBM's 2Q earnings are expected to be flattish at RM37-40mil.
"Total sales volume of MBM-related brands – Hino, Daihatsu, Volkswagen and Volvo – were flat, with growth of -0.8% YoY and +0.9% QoQ.
"Perodua, its biggest earnings contributor, also recorded flat sales volume of 61,000 units (-0.7 YoY, +0.8% QoQ) in 2Q19," it said.
Perodua could be a driver of growth moving forward if it were to introduce the right product at the right time, said RHB.
It noted market talk of Daihatsu launching a small SUV in October, which could compete against Proton's small SUV, expected to launched around the same period in 2H20.
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