MBM’s alloy wheel unit to improve in FY19

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Improvement from OMIA is expected will be driven by stable demand for Perodua alloy wheels, better production efficiency and possible capacity take-up by CD, analysts observed. – Reuters photo

KUCHING: MBM Resources Bhd’s (MBM) alloy wheel unit OMIA has been projected to improve in financial year 2019, with growth expected to be driven by the stable demand for Perodua alloy wheels, among others.

According to Affin Hwang Investment Bank Bhd (Affin Hwang Capital), MBM’s auto-parts manufacturing division reported a smaller loss before tax of RM9.1 million in the first nine months of 2018 (9M18), compared to RM19.2 million in 9M17.

“Moving into 2019, we expect OMIA, MBM’s alloy wheel unit, to remain loss-making, albeit at a smaller amount,” Affin Hwang Capital said.

“Improvement from OMIA, in our view, will be driven by stable demand for Perodua alloy wheels, better production efficiency and possible capacity take-up by Citic Dicastal (CD).”

Affin Hwang Capital noted that OMIA will remain as one of the key dual suppliers for alloy wheels to Perodua models, namely the Bezza, Axia, and Myvi standard variants.

“Nonetheless, management has toned down expectations for the supply of wheels for the new Perodua D38L SUV to 10,000 units per month from the previous guidance of 12,000 units per month.”

Elsewhere, the research firm believed OMIA did not participate in the bid for Proton’s supply chain due to the unfavourable tender price.

“Assuming OMIA continues to depend heavily on domestic demand, we think OMIA is unlikely to reach break-even levels of 50,000 units per month in 2019.”

Affin Hwang highlighted that OMIA’s production yields have greatly improved to 86 per cent from 65 per cent in the second quarter of 2018 (2Q18), thanks to the technical support from CD, cost-cutting measures and process enhancement.

The research firm further highlighted that with the help of CD, OMIA remains committed to achieve production yields of at least 90 per cent by 1Q19.

“However, OMIA has decided to drop the idea of ramping up its production capacity to one million units per annum in 2019 and instead focus on improving efficiency.”

On another note, Affin Hwang Capital gathered that CD has yet to utilise OMIA’s plant capacity fully despite having achieved industry-acceptable production yields.

The research firm said that under the agreement, CD will utilise circa 50 per cent of OMIA’s 750,000 capacity to supply wheels to Europe, India and Malaysia.

“We have not factored in CD’s capacity take-up and this would be a potential upside to our estimates should it take place.”