MBM Resources Bhd (May 26, RM3.44)

Downgrade to “sell” from “hold” with unchanged target price of RM3.60. MBM Resources first quarter financial year 2015 (1QFY15) revenue increased substantially by 41.7% quarter-on-quarter (q-o-q) and 32.3% year-on-year (y-o-y) due to a one-off revenue recognition of the property development (70%-owned Menara MBMR).

As a result, reported profit before tax (PBT) increased 64.1% q-o-q, while y-o-y it jumped by more than 100% to RM65.2 million.

Normalised revenue increased 8.2% q-o-q and remained relatively flat y-o-y. Meanwhile, normalised PBT was 20.2% lower on q-o-q, but rose 13.3% y-o-y to RM31.7 million.

Its normalised PBT margin narrowed to 7% versus 9.5% in 4QFY14 and 6.3% in 1QFY14.

Associates’ contribution improved 9% to RM29.8 million due to better performance from the Hino plant. On a sequential basis, associates’ contribution declined 20.7% to RM29.8 million, despite Perodua’s sales increasing 3.4% q-o-q.

We suspect the contraction could be related to heavy discounting activities ahead of the implementation of the Goods and Services tax (GST).

The motor trading division recorded an 80.5% jump in PBT to RM4.7 million, helped by higher passenger vehicle sales. This was partially driven by higher demand ahead of the GST implementation and the continued buoyant demand for the new Perodua Axia.

Meanwhile, auto parts manufacturing recorded smaller losses of RM2.3 million compared with a pre-tax loss of RM2.5 million in 1QFY14.

This is attributed to improved economies of scale on the back of higher deliveries of products to the major carmakers.

We have factored in the contribution from the sale of Menara MBM into our model and updated the FY15 numbers. Consequently, FY15’s net profit estimate is upgraded by 7.7% to RM145.9 million. — TA Securities Bhd, May 26

This article first appeared in The Edge Financial Daily, on May 27, 2015.

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