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This is the 4th investment piece that I am writing. You can find similar investment pieces that I wrote for Dayang, Ambank, and Matrix Concept.
Share price gained = 37%. Dividend gained = 18% (RM0.60 per share at purchase price of RM3.40)
I am a firm believer in enabling people to Go Research and Invest, but never in stock-picking for others. And I will hold onto this belief and principle.
This time around, I will be writing about MBM Resources (MBMR). It produces automotive parts for major car brands in Malaysia. And I had invested in the company at the end of 2022 when Malaysia was reopening at a strong rate.
Here’s the research process that I have done back then. And I hope that they will prove useful to you in starting your investment journey.
Screen and Filter for Companies Trading at Low Valuations
This is my bread and butter. For all the companies I have invested in, I always look for the ones that are trading at cheap valuations. If you have been a reader, you would know that I always look for two financial ratios to filter for.
Price-to-Earnings Ratio (PER): PER is the share price divided by earnings per share of the company. They normally trade at around 12 times to 17 times.
Price-to-Book Ratio (PBR): PBR is the share price divided by book value per share of the company. They normally trade at 0.9 times to 1.1 times.
For me, I filter for two main criteria.
- PER of below 10 times
- PBR of below 1.0 times
I found MBM Resources trading at a PER and PBR of 3.8 times and 0.6 times respectively. Historically, both of them were below their averages of 6.9 times and 0.7 times.
At this juncture, I saw a potential profit range of 16.7% and 81.6%. 81.6% profit was unrealistic, hence I reasoned that it would exceed 16.7% and probably end up around 30%.
But this was not enough, MBMR needed to have strong financial fundamentals supporting the company.
The financials of MBMR were solid
By then in early 2023, I have had a look at the financials of MBMR’s three quarters of 2022. They were looking good and were recovering well.
Revenue rose from RM479 million in 1Q 2022 to RM621 million in 3Q 2022, driven by the higher demand for automotive products as many major car brands ramped up their production. This was also the period when many consumers were rushing to purchase cars before the end of car tax exemptions.
I also looked at its pandemic financial performance and saw a decline in revenue to a low of RM1.5 billion in 2021 from RM2.1 billion in 2019. While this was concerning, I was positive about the company as it still managed to retain a positive net profit of RM171 million in 2021. It showed a strong resilience to recessions.
With these in mind, I was convinced that MBMR had strong fundamentals into the future but it remains to be seen whether the outlook would be favourable for the company.
The Outlook for the Automotive Industry and MBMR was Secured
There were three main outlooks and trends that I was looking out for.
Firstly, the prospects of the major car brands of Proton and Perodua were key. They were the determinants of the automotive industry in Malaysia. And I saw that orders for both these car brands were rising at a strong rate then.
Secondly, I was also looking at whether passenger car sales will hold up well after the end of sales tax exemption in June 2022. If anything, sales were even stronger showing the strength of consumer spending in the Malaysian economy. Full-year 2022 sales rebounded by 42% to 720,658 units from 508,883 units in 2021.
Thirdly, the trend of electric vehicles. In 2023, EV trends were going strong. Tesla was gaining prominence, and so did many Chinese EV markets such as BYD. Geely’s involvement with Proton was a good sign that EV trends will also be coming to Malaysia.
These trends convinced me that MBMR’s prospects and outlook looked secure.
I used Technical Analysis to Enter a BUY position of RM3.40 in January 2023
My technical analysis here was simple. MBMR has already been on an uptrend since December 2023. It traded upwards from RM3.10 to RM3.40 and settled at that level for 2 weeks.
I decided to enter at that level at RM3.40. I didn’t employ any fancy technical indicators and simply used a simple technical analysis to find a buying opportunity.
Sometimes, simple is best.
In One Year’s Time, I Exited at RM4.65
In February 2024, I exited MBMR for RM4.65, marking about 37% in profits gained in share price. In the meantime, I also gained RM0.60 of dividends per share during this one year. And this gave me a total dividend yield of 17.6%.
So, it sufficed to say that I gained about 55% on my investments in MBMR if I included dividends.
Go Research and Invest
This is not a stock recommendation. I have already exited this investment. What I would like to inspire you to do is to take up the initiative to find stocks that are worth your time to invest in.
It only takes an initial step to get started. Get started now and go research and invest!
Slice of P.I.E 