Affin Hwang downgrades MBM to ‘hold’ on earnings concerns


  • Auto
  • Thursday, 05 Mar 2020

MBM, which owns a 22.6% stake in national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua), is expected to post lower contributions from associates and weaker top-line growth.

PETALING JAYA: Affin Hwang Capital Research has downgraded MBM RESOURCES BHD to “hold” and slashed the target price by one-third to RM3.60 as it turns cautious on the company’s near-term prospects.

MBM, which owns a 22.6% stake in national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua), is expected to post lower contributions from associates and weaker top-line growth.

Perodua’s sales momentum could moderate in 2020 and drag down its earnings, mainly due to the intense competition from Proton and the softer economic outlook amid the novel coronavirus (Covid-19) outbreak.

In view of the challenges, Affin Hwang Capital Research also reduced the earnings per share forecast for the financial year of 2020 to 2022 (FY20-22) by 4% to 5%.

“Apart from the contribution from associates, MBM is also affected by the distribution of Perodua sales in Malaysia through its 51.5%-owned subsidiary, DMM Sales Sdn Bhd (distributed about 10% of Perodua’s sales volume in 2019)

“We think the subdued operating environment amid the ongoing political uncertainty and escalating fears of the Covid-19 outbreak will affect the car sales growth of its motor trading division in the coming months, particularly the premium marques like Volkswagen and Volvo.

“A prolonged Covid-19 outbreak, in our view, could also cause a temporary manufacturing supply delay from China, potentially affecting MBM’s auto parts division, ” the research house said in a note yesterday.

Affin Hwang Capital Research also cautioned that MBM lacked a rerating catalyst in the immediate term, until its transformation team formulates a proper long-term strategy.

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