MBMR: Automotive Group Navigates Headwinds Despite Quarterly Profit Boost

Financial institution TA Securities has reiterated a SELL recommendation for MBM Resources Berhad, maintaining an unchanged target price of RM4.31 per share. This comes despite the automotive group reporting a higher profit for the second quarter of FY25, primarily propelled by robust performance from its business units and associates, alongside dividend contributions.

Performance Review

MBM’s improved second-quarter performance, however, could not fully offset a challenging first half, with reported profit for 1HFY25 still down by 2.7%. This decline was largely attributed to a softened demand environment in 1Q25, exacerbated by the absence of a one-off bulk purchase that had significantly boosted 1Q24 joint venture contributions. The motor trading division experienced a dip in vehicle sales, reflecting broader market trends and heightened competition from new Chinese car brands. While the auto parts manufacturing division saw its revenue increase, profitability in this segment was constrained by a strategic shift towards lower-margin models.

Competitive Landscape and Margin Pressures

Management highlighted the significant shifts in market share, particularly during 2Q YoY, with Chinese brands like Jaecoo (2.9% share) and BYD (2.1% share) showing strong momentum. This has led to losses among Japanese automakers, with Honda experiencing a sharp decline in market share. National brands Perodua and Proton also faced pressure and gains, respectively. MBM’s motor trading division saw a 4.4% decline in vehicle sales to 14.7k units in 1HFY25, signaling overall market headwinds and intensified competition.

The group anticipates that margin pressures will persist into 1HFY25, particularly in the motor trading segment, where aggressive discounting and stiff competition are weighing on profitability. In the auto parts segment, margins continue to be challenged by shifts in model mix and customer cost-down requirements. While management aims to partially mitigate these headwinds through favourable raw material price movements and potential forex gains, the overall outlook suggests continued margin pressure.

Future Outlook and Challenges

Perodua, a key component of MBM’s automotive distribution, continues to demonstrate resilience with an order book of approximately 90,000 units. Management confirmed plans to launch Perodua’s first Electric Vehicle (EV) in 4Q, with an initial production target of 500 units per month and pricing estimated around RM80k-RM100k (excluding battery). Despite initial small volumes, the long-term demand potential for EVs is deemed high given strong backlogs.

However, uncertainty looms over the future of the government’s EV tax exemption for CBU units beyond 2025. While discussions are ongoing, a non-renewal could introduce pricing pressure in 2025. MBM plans to mitigate these impacts by focusing on driving higher sales volumes and leveraging recurring after-sales income as a stable earnings contributor. Despite these efforts, TA Securities maintains its cautious stance on the group’s earnings outlook, citing moderating industry volumes, intense competition, and persistent cost pressures.