Inari 3QFY16 results (in line), MBM 1Q16 results (in line), MY April Auto Statistics (below)

Inari Amertron (INRI MK; BUY; TP: MYR3.20) - Is the worst over?

• Further shipment deferments cannot be ruled out. While the blip in the RF division in 3QFY6/16 was expected, we caution that further deferment of shipment beyond that is not impossible as its main end client (a premium smartphone maker) has continued to guide for inventory rationalisation. We keep our forecasts unchanged pending an analyst briefing today.
• Expect a knee-jerk reaction to share price. Inari’s share price may react negatively following this weak set of results; a first major shortfall in earnings in 4 years. At MYR157m, consensus earnings appear optimistic, expecting Inari to report MYR48m profit in 4QFY6/16. Our forecasts are unchanged for now; maintain BUY.

MBM Resources (MBM MK; HOLD; TP: MYR2.05) - Within expectations

• Better days ahead. In line with our expectations, MBM’s 2016 will be a tale of two halves whereby 2H16 should be stronger HoH, driven by the launch of Perodua’s sedan model. Pending further clarity (i.e. price points, targets, specifications) on the sedan model’s launch, we maintain our earnings forecasts, HOLD rating and TP.
• Betting on Perodua sedan model. A successful launch of the Perodua sedan model carries a threefold benefit to MBM. Firstly, MBM supplies auto parts (i.e. seatbelts, airbags and wheels) to Perodua via wholly-owned Hirotako, 51%-owned Autoliv and 78%-owned OMI. Secondly, MBM distributes ~10-11% of Perodua cars sold in Malaysia via 51.5%-owned DMM Sales (DMMS). Lastly, Perodua is a 22.6%-owned associate which accounts for ~90% of MBM’s bottomline.

Auto Stats: Automotive (NEGATIVE) - A short-lived recovery

• Sees downside risk to our 2016 TIV forecast. Apr 2016 TIV sales made a U-turn and headed back to a MoM contraction, recording just 42.2k units (-14% MoM, -7% YoY). At this juncture, downside to our 2016 TIV forecast of 620k units (-7% YoY) is likely. We keep our TIV forecast unchanged for now but tactically downgrade the sector to NEGATIVE based on a bottom-up approach (SELL rating on UMWH and TCM unchanged). We remain BUYers of Pecca and BAuto. HOLD on MBM.
• What’s interesting in April?

                     I.        VW sales jumped an impressive 106% YoY on heavy discounting (MYR20k-53k/22%-34% discounts) for its CKD models (i.e. Polo, Jetta, Passat).

                    II.        For 4M16, Honda has overtaken Proton to be the No.2 largest marque by sales volume for the first time in history.

• Downgrade the sector to NEGATIVE. Going forward, monthly TIV will need to hit an average of 55.8k units (2015 monthly average: 55.6k units) to meet our street-low 2016 TIV forecast of 620k units; expect downgrades by consensus. We see downside mainly from our 2016 Toyota vehicle sales forecast of 75k units; 4M16 sales of 14.7k units made up only 20% of our estimate. Our forecasts for UMWH are unchanged pending 1Q16 results due out on 24th May.