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Virus impact to cost MBM Resources up to one-third of revenue

TheEdge Mon, Mar 30, 2020 08:28am - 1 month ago

KUALA LUMPUR: MBM Resources Bhd expects its revenue to drop by 25% to 30% this year due to the Covid-19 pandemic, which has forced many nations the world into a lockdown.

According to the group’s chief executive officer (CEO) Dr Muhammad Iqbal Shaharom, its motor trading segment will be hit the hardest, no thanks to the extension of the movement control order (MCO) in Malaysia.

“We believed we could still catch up in April and May if the MCO was only [enforced for] two weeks. But now we have to revise our 2020 budget,” he told The Edge Financial Daily.

“We are still finalising the revised budget,” added Muhammad, who is also the president of MBM Resources.

MBM Resources’ net profit rose 32% to RM220.49 million for the financial year ended Dec 31, 2019 (FY19), from RM166.76 for FY18. This was recorded on higher revenue of RM2.09 billion, up 11% from RM1.88 billion, with its motor trading business being the biggest contributor.

The group is involved in the distribution and dealership of international marques like Daihatsu, Hino, Iveco, Volvo, Volkswagen and Mitsubishi in Malaysia.

It also owns a 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd (Perodua) — a long-time market leader in the local automotive industry.

“In terms of sales, we have two to three weeks of outstanding orders that need to be fulfilled. Aftersales customer service have been temporarily halted until the partial lockdown is lifted. Our manufacturing division is fine for now but if the lockdown goes on longer than four weeks, it will not be good,” Muhammad said.

MBM Resources also manufactures steel and alloy wheels, safety restraint products — airbags, seat belts and steering wheels — and noise, vibration and harshness products. The group is a significant parts supplier to all major car manufacturers in the country, according to its website.

Its non-executive chairman Datuk Aminar Rashid Salleh said while the Covid-19 crisis is worrying, it is too early to predict or forecast its total impact on businesses and the economy.

“What’s important now is that we focus on combating the virus. The numbers will change depending on how fast we can contain the spread of this virus and reach a plateau on new cases.

“Since the world is affected by Covid-19, economic recovery will be slow. But on a positive note, this may be a good time for companies to do mergers and acquisitions. They may want to relook into their existing business models and strengthen their risk management,” said the former Perodua CEO.

MBM Resources boasts a strong balance sheet, with a positive net cash position of RM227.8 million as at Dec 31, 2019.

Last Wednesday, Prime Minister Tan Sri Muhyiddin Yassin announced the government’s decision to extend the MCO by 14 days to April 14 from March 31, as he pointed to rising daily new cases. He also did not rule out the possibility of a further extension after April 14, if the situation warranted it.

Meanwhile, Affin Hwang Capital said in a recent report that the economic slowdown would impact market sentiment, with non-national cars expected to face tougher times ahead.

The research house, which has a “neutral” stance on the sector, also downgraded MBM Resources to “hold” at RM3.46 and cut its target price to RM3.60 from RM5.40 previously, according to its March 4 report.

Last Friday, MBM Resources closed nine sen or 3.44% higher at RM2.71, which gave it a market capitalisation of RM1.06 billion.

Affin Hwang said MBM Resources’ associate, Perodua, will likely see sales moderate from the recent high of 240,00 units in 2019, considering the challenging economic outlook and intense rivalry with Proton Holdings Bhd.

“A prolonged Covid-19 epidemic could also cause temporary manufacturing supply disruption for the auto parts division, while also dampening demand,” it added.

In an exchange filing on its FY19 performance, MBM Resources said it expects potential temporary manufacturing supply delays from China due to Covid-19.

However, the group said it has embarked on a transformation programme to improve its current operations in terms of profitability.

This includes cost rationalisation and efficiency improvement, tightening of performance measurements, as well as the expansion of product and service offerings.

“The group is also formulating strategies to drive mid- to long-term growth,” it added.

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