MBMR: Automotive Group Faces Headwinds Amid Moderating Market, Sell Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM4.31 (-14.8%) |
| Last Traded | RM5.06 |
| Recommendation |
MBM Resources Berhad (MBM) reported 2QFY25 results that were in line with market expectations, with core net profit climbing 7.2% year-on-year to RM72.5 million. However, the cumulative first-half (1HFY25) core net profit saw a modest 2.7% year-on-year decline, accompanied by a marginal 0.8% drop in revenue. This weaker overall performance was primarily attributed to softer market demand and reduced contributions from joint ventures.
Performance Review
Delving into divisional performance, MBM’s Motor Trading Division registered a 2.2% year-on-year increase in profit before tax (PBT) to RM152.3 million for 1HFY25, largely bolstered by higher contributions from associates. Conversely, the Auto Parts Division experienced a notable 21.5% year-on-year decrease in PBT to RM22.7 million, a result of lower sales volumes and shifts in product mix.
The group also declared a first interim dividend of 7.0 sen per share and a special single-tier dividend of 15.0 sen per share for the quarter, bringing the total dividends for the period to 22 sen per share, an increase from 16 sen per share in the corresponding period last year.
Future Outlook and Challenges
Malaysia’s automotive market is anticipated to stabilize in 2025, with total industry volume (TIV) projected to decline. This signals a return to more normalized conditions following a period of elevated demand as order backlogs have largely been cleared. The competitive landscape is intensifying, characterized by aggressive pricing strategies and heavy promotions aimed at maintaining market share in both traditional and electric vehicle (EV) segments. While these efforts may help retain customers, they are also expected to compress margins and reduce overall profitability.
The EV segment presents both opportunities and significant challenges. Intensified competition from both local and international players, coupled with high vehicle prices and limited charging infrastructure, are expected to continue straining sales and margins. MBM’s ability to effectively balance competitive pricing with operational efficiency and value-added offerings will be crucial for sustaining market share and profitability into FY26, as persistent cost pressures are also likely to impact margins.
Analyst Recommendation
TA Securities has maintained its SELL recommendation for MBM, with an unchanged target price of RM4.31 per share. This target price is based on a CY26 Price-to-Earnings ratio of 6x. The firm reiterated its cautious stance on the group’s earnings outlook, citing moderating industry volumes, intensifying competition, and the aforementioned persistent cost pressures. The target price represents a 14.8% downside from the last traded price of RM5.06.
