6 MBM RESOURCES BERHAD

Management
Discussion and
Analysis

GROUP’S BUSINESS OVERVIEW

MBM Resources Berhad (“MBMR”) Group operates through
two principal business divisions, namely, Motor Trading Division
and Auto Parts Manufacturing Division. Our Motor Trading
Division consists of the Daihatsu (Malaysia) Sdn Bhd Group
(“DMSB Group”) and Federal Auto Holdings Bhd Group
(“FAHB Group”). DMSB has been the exclusive sole distributor
of Daihatsu light-duty commercial vehicles in Malaysia for
the last 39 years. Currently, it distributes the Gran Max 1.5L
model with 17 different body applications to cater to various
business needs. DMSB, through its wholly-owned subsidiary
DMM Sales Sdn. Bhd., is the largest dealer for Perodua
vehicles whilst it also holds the largest dealership for Hino
commercial trucks and buses in Malaysia. Under FAHB Group,
we carry the luxury brand of Volvo with our flagship Volvo 4S
center in Glenmarie, our newly renovated Penang 3S center
and the central Kuala Lumpur 1S center. The Group is also
the biggest dealer of Volkswagen vehicles and operates its
Volkswagen 4S centers in Glenmarie and Johor Bahru and a
boutique 3S center in Sri Hartamas, Kuala Lumpur.

Annual Report 2019 7

MANAGEMENT DISCUSSION AND ANALYSIS

Our Motor Trading Division in Numbers

GROUP TOTAL

28,013 DISTRIBUTORSHIP
Daihatsu (Malaysia)
Sdn Bhd
DEALERSHIP
Daihatsu (Malaysia)
Sdn Bhd
VEHICLES SOLD
1,358 324
219,149 VEHICLES SOLD VEHICLES SOLD

VEHICLES SERVICED 9,412 11,423

VEHICLES SERVICED VEHICLES SERVICED
SALES
OUTLETS 39
SERVICE
OUTLETS 37
SALES
OUTLETS 8/21* SALES
OUTLETS 8
SERVICE
13/24* SERVICE
6
6
BODY & OUTLETS OUTLETS

1
PAINT BODY &
PAINT

* authorised dealers

DEALERSHIP DEALERSHIP DEALERSHIP

(Largest in Malaysia) Federal Auto Cars F.A. Wagen
DMM Sales Sdn Bhd Sdn Bhd Sdn Bhd

24,488 833 1,010

VEHICLES SOLD
VEHICLES SOLD VEHICLES SOLD

161,862 12,226 24,226

VEHICLES SERVICED VEHICLES SERVICED VEHICLES SERVICED

SALES
OUTLETS 17 SALES
OUTLETS 3 SALES
OUTLETS 3
SERVICE
OUTLETS 13 SERVICE
OUTLETS 2 SERVICE
OUTLETS 3
BODY &
PAINT 2 BODY &
PAINT 1 BODY &
PAINT 2

8 MBM RESOURCES BERHAD

 MANAGEMENT DISCUSSION AND ANALYSIS

The Group is also a significant auto parts supplier to all the major
car brands in Malaysia through its Auto Parts Manufacturing
Division. The Auto Parts Manufacturing Division is comprised of
our subsidiaries Oriental Metal Industries (M) Sdn Bhd (“OMI”)
and Hirotako Acoustics Sdn Bhd (“HASB”), as well as our jointly
controlled entity Autoliv Hirotako Sdn Bhd Group (“AHSB Group”).
OMI is involved in the manufacturing of steel wheels and module
assembly of tyres, whilst HASB supplies a wide range of products
ranging from dampening sheets to insulators and felts, collectively
termed as Noise, Vibration and Harshness (“NVH”) products
to the local automotive market. AHSB Group is involved in the
manufacturing of safety restraint systems such as airbags and
seatbelts, as well as steering wheels.
Additionally, the Group has investments in commercial and
passenger vehicle assembly / manufacturing and distributorships
through its main associates, i.e. Perodua, Hino Motors
Manufacturing (Malaysia) Sdn Bhd and Hino Motors Sales
(Malaysia) Sdn Bhd ( “Perodua” and “Hino”).

Our Auto Parts Manufacturing Division in Numbers

228,000 524,000 1,568,000

STEERING WHEELS AIRBAGS SEAT BELTS

364,000
STEEL WHEELS

163,000
ALLOY WHEELS

2,398,000 657,000
TYRE ASSEMBLY NVH PRODUCTS

Annual Report 2019 9

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL PERFORMANCE
(Restated)
FY FY %
RM Mil 2019 2018 Change
Revenue
Total Group’s reportable
segments and all others 2,110.8 1,927.0 9.5
Less: Discontinued operation (25.6) (44.3) (42.2)
Continuing operations,
as reported 2,085.2 1,882.7 10.8
Continuing operations
Operating profit 36.0 31.6 13.9
Net one-off gains
from disposals / costs 27.2 - >100
Net finance income / (costs) 2.4 (0.4) >100
Share of joint venture results 11.9 14.3 (16.8)
Share of associates’ results 190.8 183.1 4.2
Profit before tax 268.3 228.6 17.4
Discontinued operation
Operating loss (5.3) (19.6) 73.0
Net finance costs (2.8) (5.0) 44.0
Loss before tax (8.1) (24.6) 67.1
In 2019, MBMR Group’s revenue from continuing operations
increased to RM2.09 billion as compared to 2018’s revenue of
RM1.88 billion, an improvement of RM202.50 million or 10.8%.
The increase was contributed by both our Motor Trading and Auto
Parts Manufacturing Divisions. 2019 also marks an important
milestone for MBMR Group where the Group’s revenue crossed
the RM2 billion mark.
Group's Vehicle Sales
TIV
8.9%
8.5%
Revenue from our Motor Trading Division increased by 10.8% to
RM1,876.1 million as compared to 2018’s revenue of RM1,693.3
million with our Group vehicle sales increasing by 3.9% year-on-
year, against the 0.9% increase in Total Industry Volume (“TIV”).
Despite the lack of tax-free factor to boost vehicle sales, consumer
preferences were clearly steered towards national makes in 2019,
setting another record sale for Perodua at 240,341 units, an
increase of 5.8% against 2018, thus firmly placing Perodua at its
top market leader position with the passenger vehicles market
share of 43.7% versus 42.6% in 2018. MBMR Group likewise
achieved new heights with our Perodua sales volume at 24,488
units, as compared to the 23,350 units sold in 2018, an increase
of 4.9%. Among the Perodua models, the new Myvi continued
to garner highest sales volume since its launch in November 2017,
complemented by the newly launched Aruz and persistent
demand for the remaining Perodua models. As for Volvo, the SUV
range remains our customers’ favourite with the addition of the
XC40 CKD version available for deliveries since the beginning of
the year. The Daihatsu brand in 2019 also brought in higher than
expected volume due to increased fleet customer sales.
For the Auto Parts Manufacturing Division, revenue from
continuing operations increased further to RM207.2 million in
2019, a 12.4% increase from 2018’s RM184.4 million. The revenue
increase was mainly contributed by higher production demand for
the tyre assembly and NVH products.
With the higher sales volume, the Group’s 2019 operating profits
from continuing business (excluding one-off net gain/costs, net
finance costs, and share of joint venture and associates’ results),
as shown in the “Financial Performance” table was RM36.0million,
a further improvement of RM4.4million or 13.9% as compared to
the operating profit of RM31.6million in 2018.

In June 2019, the Group ceased its alloy wheel operations as

3.9%
3.8%

planned and thereby reduced operating losses by RM14.3 million,

0.9%

or 73.0% as compared to the operating losses from the preceding

0%

financial year. The alloy wheel operation has since been classified
as Discontinued Operation.
-0.6%
-2.6%
-5.9%

During the year, the Company also successfully disposed of 22%

each of its shareholdings in its associated companies, Hino Motors
Manufacturing (Malaysia) Sdn Bhd (“HMMM”) and Hino Motors
-13.0%

Sales (Malaysia) Sdn Bhd (“HMSM”) to Hino Motors, Ltd, for cash
2015 2016 2017 2018 2019
consideration of RM43.0 million and RM31.4 million respectively,
Percentage Change in Group Vehicle Sales vs TIV
resulting in a total gain of RM24.8 million. Subsequent to the

10 MBM RESOURCES BERHAD


disposal, the Company’s shareholding in HMMM and HMSM
reduced from 42% to 20%. The proceeds from the disposals were
fully utilised to pay down bank borrowings within the Group.
Further, the Group recognised RM11.9 million gain from disposal
of a property under the Motor Trading Division to monetise
unutilised properties. We also wrote off various one-off costs at
the Motor Trading Division amounting to a net RM9.5 million.
Together, the net one-off disposals and write off totalled
RM27.2 million.
With the aforesaid increase in Perodua’s performance in 2019,
complemented by the increase in Hino’s market share of the
domestic commercial vehicle market from 8.9% to 10.2% in
2019, albeit partly offset by the lower shareholdings in HMMM
and HMSM from June 2019 onwards, the Group’s share of the
associates’ results therefore increased by RM7.7 million or 4.2%
to RM190.8 million against 2018’s share of RM183.1 million. The
share of the joint venture entity’s results is however lower in 2019
by RM2.4 million or 16.8% as the profit in 2018 included a recovery
of some long outstanding claims.
Overall, the Group recorded profit before tax from continuing
operations of RM268.3 million in 2019, the highest ever profit
achieved by the Group.
FINANCIAL POSITION
As at 31 December 2019, the Group’s net assets have increased
from RM1,828.5 million to RM2,012.6 million, an improvement
of RM184.1 million. The Group’s net assets per share (attributable
to equity holders) therefore increased from RM4.03 to RM4.47
per share.
MANAGEMENT DISCUSSION AND ANALYSIS
The increase in net assets of the Group was mainly contributed by
current year’s profits from our Business Divisions and consistent
performance from the associates especially Perodua, as well
as our joint venture entity. The unlocking of the higher value in
HMMM and HMSM through the aforementioned disposals also
contributed to the increase in the Group’s net assets value. The
proceeds from the disposal were subsequently utilised to pay
down bank borrowings. The Group’s bank borrowings therefore
reduced further from RM145.5 million to RM35.9 million, with a
pay down of RM109.6 million during the year.
In 2019, the Group incurred capital expenditures amounting to
RM14.7 million to further upgrade our showrooms and workshop
facilities as our continuous efforts to expand business operation
and enhance customer comforts and satisfaction. The upgrades
were carried out on various Perodua, Daihatsu and Hino outlets.
Our Volvo Penang 3S center also underwent an extensive
renovation to achieve better customer experience. Part of
the capital expenditures also went to tooling in our Auto Parts
Manufacturing Division to prepare for new productions in the
coming year.
Not forgetting to reward our shareholders, the Group paid RM58.6
million in dividend to our shareholders in 2019 as compared to
RM17.6 million paid in 2018.
With that, the Group was still able to increase its cash and bank
balances from RM197.4 million in 2018 to RM265.6 million by
31 December 2019.
OPERATIONAL REVIEW
Motor Trading Division
In 2019, our Motor Trading Division recorded revenue of RM1,876.1
million, a 10.8% improvement from 2018’s revenue of RM1,693.3
million. The Division’s operating profit before interest and tax,
excluding the earlier mentioned one-off gains/write off, is higher
in 2019 by RM6.2 million or 26.5% against the performance in
2018. Aside from consistent vehicle sales, the higher performance
in 2019 was mostly due to action taken to discontinue and thereby
eliminate any further losses from the Iveco business.
Annual Report 2019 11
MANAGEMENT DISCUSSION AND ANALYSIS

comprehensive fleet program management which provides

4.6%
4.4% 4.5% innovative solutions and service support to customers. Hino, on
4.3%
4.1% the contrary, closed the year with 16.7% reduction in sales volume
mainly due to intense competition and long body-building process
28,013 which delayed invoicing.
27,028 26,965

167,348
25,432 24,765

160,059

153,875
156,263
150,275
666,674

604,287
598,714
576,635
580,124

2015 2016 2017 2018 2019

Aftersales Revenue (RM’000)

2015 2016 2017 2018 2019 With concerted efforts to improve aftersales efficiency and

TIV Group's Vehicle Sales Group Share of TIV

Group Vehicle Sales Market Share
As mentioned in the earlier paragraphs, Perodua continued to
enjoy strong consumer demand for all its models and ended the
year with a 4.9% increase in sales volume. Volvo’s sales volume
also increased by 5.6% year-on-year with the boost coming from
the addition of XC40 from the beginning of the year, as well as the
launch of the new S60 sedan model in the month of October. As
service quality, the Division’s aftersales saw an increase of 8.7%
in revenue for the year from RM153.9 million in 2018 to RM167.3
million in 2019. Some of the initiatives implemented during the
year included the introduction of Kaizen activities at various
service centers, strengthening of aftersales standard procedures
and the DMSB-Hino Customer Loyalty Program. Given that
margins coming from aftersales services are higher, the Group
will intensify its effort to increase throughput volume and value
through efficiency improvement and upselling.
2018

for Volkswagen, we faced increasing price pressure which led to

lower margins coupled with lower demand after the high GST tax-
free volume in 2018. Increased operating costs was also a factor
2019
affecting the profit in 2019. In terms of vehicle sales market share, 39.3%
the Group contributed to 10.2% of Perodua’s new car registrations, 60.7%
and 45% and 17.3% respectively of Volvo and Volkswagen new car
registrations in 2019.

40.6%
In our commercial vehicle segment, 2019 saw impressive
performance from our Daihatsu team with an 18.3% increase 59.4%
in sales volume as compared to 2018 mainly lifted by higher
fleet sales volume. We are seeing results from earlier efforts
to introduce programmes for the Daihatsu dealers including
supports for roadshows, campaigns, etc., as well as new initiatives After Sales Vehicle Sales

to support existing customers and attract new interest with

programmes such as the Daihatsu Business Fleet Program, a Gross Margin between Vehicle Sales and Aftersales

12 MBM RESOURCES BERHAD


Auto Parts Manufacturing Division
The Division recorded revenue from continuing operations of
RM207.2 million in 2019, a 12.4% increase from 2018’s RM184.4
million contributed mainly by our module assembly business
and NVH products. The Division’s continuing operating profit
before interest and tax (excluding the gain from disposal of 22%
shareholding in HMMM) however, drew in mixed performance
with a net reduction of RM1.4 million or 11.1% against 2018. The
reduction is mainly coming from the declining steel wheel volume.
Our NVH products also brought in slightly lower profit despite
higher revenue mainly due to increased product testing costs
incurred for the coming year’s production.
614,664
571,632
545,253 564,971
499,639
2015 2016 2017 2018
Steel wheels Alloy wheels Tyre assembly Steering wheels
Airbags Seat belts Acoustics products TIP
Auto Parts Manufacturing Production Volume vs TIP
Wheels and tyre assembly
Given that the domestic market demand for steel wheels has been
on declining trend in recent years, OMI’s steel wheel business
also recorded a further 9.5% reduction in revenue in 2019.
Notwithstanding, with the continuous efforts to optimise internal
resources, reduce cost and improve efficiency by minimising
machine downtime and labour turnover, our steel wheel business
remained profitable. That said, the Management is also reviewing
the steel wheel business strategies moving forward.
As for the module assembly business, we are seeing increasing
business opportunities with revenue and sales volume for 2019
MANAGEMENT DISCUSSION AND ANALYSIS
higher by 15% and 7.2% respectively. The increase came mostly
from new model productions commenced during the year. We
are also seeing an increasing shift by carmakers opting for more
value-add services, i.e component purchases in addition to pure
tyre assembly services which brings in additional margins for
our tyre assembly services. In 2019, OMI’s share of Malaysia’s
tyre assembly market increased by 4% to 84% against the Total
Industrial Production (“TIP”) volume of 571,632 units (Source:
MAA). The increase came from higher market share for OMI’s
major customers such as Proton, Perodua & Toyota.
In June 2019, we fulfilled all the alloy wheel delivery obligations
to our customers and proceeded as planned to close our alloy
wheel operations. All the known significant impairments and
provisions had been fully recognised. The Management is also
negotiating with potential buyers to sell the alloy wheel plant and
its machinery. We target to complete the sale in the current year.
Safety Products
Our jointly controlled entity, AHSB Group, is a 51% owned joint
venture with Autoliv AB. AHSB Group is involved in the design,
testing and manufacture of safety restraint products and systems
for motor vehicles. Our products include seat belts, airbags and
steering wheels. Autoliv AB is the world’s leading safety restraint
company with the highest market share globally.
We see a consistent year of performance from AHSB Group
2019
in 2019 with a total of 2.3 million products delivered to the
customers, and a marginal growth of 1.4% over the production
volume in 2018. Likewise, revenue also increased by 2.7% to
RM201.8 million as compared to 2018. AHSB maintained its
market leader position in Malaysia for 2019 with market shares of
the aforesaid products at 49%, 40% and 31% respectively.
In 2018, AHSB managed to recover some one-off long
outstanding claims, which partly contributed to its higher profit
for the year. Consequently, the share of our joint venture results
in 2019 is lower due to the absence of such claims. Operationally,
AHSB Group’s profit was higher by 7.2% in 2019 as compared to
2018 due to higher production demand from customers.
In 2019, AHSB received the Outstanding Quality Performance
award from Assembly Services Sdn Bhd, the car assembler for
Toyota, and Best Quality award from Toyota Boshoku UMW Sdn
Bhd. The latter also awarded AHSB a Certification of Appreciation
for commitment towards new model development.
Annual Report 2019 13
 MANAGEMENT DISCUSSION AND ANALYSIS
Acoustics products
Our wholly-owned subsidiary, HASB, is a major supplier of a wide
range of NVH products to the domestic automotive industry
including dampening sheets, NVH and felt products. These NVH
products are cost competitive and feature lightweight products
for better protection against heat and noise as well as better fuel
efficiency. HASB’s technical partner, Autoneum, continues to
provide strong technological support. Autoneum is a global leader
in acoustic and thermal management solutions for vehicles.
HASB’s revenue for 2019 saw an impressive 16.1% increase due to
the launch of various new model productions during the year such
as the Toyota Yaris and Mazda CX-8 models. HASB’s market share
on dampening sheets therefore increased by 5% to 81% and NVH
products likewise increased by 3% to 43% against the Malaysian
OEMs’ TIP volume.
Outlook
At the beginning of 2020, we had only expected a relatively
subdued operating environment with the Malaysian Automotive
Association projecting a flattish total vehicle sales of 607,000
units in 2020, a mere 0.5% increase from 2019’s 604,287 units.
Things soon took a sharp downturn with the extensive outbreak of
the Covid-19, and the subsequent lock-downs implemented across
the globe including Malaysia. The Movement Control Order
(“MCO”) in Malaysia started on 18 March 2020 and was gradually
loosened from 4 May 2020 onwards. During the MCO, businesses
were asked to shut down to curb the spread of Covid-19 virus.
MBMR Group complied with the Malaysian Government’s orders
and took all necessary precautions within the business premises
of the Group. MBMR Group also supported Malaysia’s efforts to
combat Covid-19 with a RM300,000 contribution towards much
needed medical supplies to healthcare facilities. The Covid-19
outbreak will have an impact to the Group’s operations moving
forward and we expect to see the slowdown in demands to
continue into the near future amidst all the uncertainties.
Locally, Bank Negara had reported on 4 Apr 2020 that Malaysia’s
Gross Domestic Product (GDP) is expected to contract to a
range of -2.0% to 0.5% (2019: 4.3%) driven mainly by private
consumption, albeit at a slower pace of 4.2% as compared to
2019’s 7.6%. Real GDP for various sectors are also expected to
slow down with the Services sector reducing to 2.3% (2019: 6.1%)
and the Manufacturing sector to an alarming -8.6% (2019: 3.8%).
The World Bank had also lowered its projection of Malaysia’s
14 MBM RESOURCES BERHAD
GDP on 31 Mar 2020 to -0.1% against the backdrop of growing
uncertainty over the duration and overall impact of the Covid-19
outbreak, a stark contrast to the earlier 4.5% GDP target.
Globally, the International Monetary Fund (“IMF”) projected that
global economy would contract by 3% in 2020, an extraordinary
reversal from early 2020 when the Fund forecasted that the world
economy would outpace 2019 and grow by 3.3%. According to the
IMF, this year’s fall in output would be far more severe than the
last recession, when the world economy contracted by less than
1% between 2008 and 2009.
With these bleak data and forecasts in mind, we expect to face
a very challenging year ahead indeed. The reduced demand will
certainly intensify competition from other brands and new dealers
and put tremendous pressure on our volumes and margins. At the
Manufacturing side, we likewise expect significant reduction in
production demand from carmakers, exacerbated by delays in
vehicle pricing approvals for certain carmakers, which in turn will
further affect our production supply.
To counter these challenges, the Group has refocused its
Transformation Programme that commenced earlier this year to
formulate strategies in driving mid to long-term growth, as well
as taking mitigating actions in current operations post-MCO
period through cost rationalisation and efficiency improvement,
tightening of performance measurements as well as adjusting of
product and service offerings.
The Group will continue with our current focus to improve
aftersales volume and margin to partially negate the flattish
vehicle demand. At our manufacturing plant, increase in
automated facilities is also in the pipeline to increase efficiency
and profitability in the long run.
 MANAGEMENT DISCUSSION AND ANALYSIS

Meanwhile, we remain hopeful for gradual recovery in consumer Appreciation

confidence and cosumptions once the Covid-19 situation has been
brought under control. We are also confident of the quality and
product mix of the vehicles within the Group, especially with the
steady demand Perodua enjoys within its unique market segment,
the continuous strength of the Volvo brand, the potential new
models from Volkswagen, as well as the commercial vehicles
from Daihatsu and Hino that cater to specific market segments.
Moreover, we expect further growth in our Auto Manufacturing
Division as various parts developments for national and non-
national models have led to a number of new contracts for the
Division in 2020 and beyond.
Dividend
For the financial year 2019, we declared a total of 13.0 cents
(2018: 6 cents) dividend to-date amounting to RM50.8 million.
The Directors have also recommended a final dividend of 9.0
cents (2018: 6 cents) per ordinary share to be approved at the
forthcoming Annual General Meeting (“AGM”), taking the
dividend for 2019 to a total 22 cents (2018: 12 cents), or an
estimated RM86.0 million, the highest dividend ever declared by
the Group. The higher dividend payout is in line with the Group’s
practice to reward shareholders with regular and healthy dividend
in line with our financial performance.
We would like to express our heartfelt appreciation for
the continuous support we received from our customers,
shareholders, business partners and other stakeholders. We thank
our employees for their continuous dedication and commitment
to the Group.
2019 has been a year of change for the Board of MBMR. We
therefore take this opportunity to express our sincere and
heartfelt appreciation to all our present and past Board members
for their support and guidance throughout the year, and for
their valuable contributions to the Group over the years. We bid
farewell to our Ex-Chairman, Dato’ Abd Rahim bin Abd Halim,
our Directors Encik Mustapha bin Mohamed and Encik Shamshin
@ Shamshir bin Ghazali, who all retired at the AGM on 29 May
2019. At the same time, we welcome in our new Chairman of the
Board, Datuk (Dr) Aminar Rashid bin Salleh who was appointed as
a Director on 29 May 2019, and re-designated as Chairman of the
Board on 25 June 2019, as well as Ms Wong Fay Lee who was re-
appointed to the Board on 29 May 2019.

During the year, the Group has also announced a dividend payout
policy of a minimum of 60% of the Company’s net profit. In
computing the dividend payout ratio, we have excluded the gain
from the Hino Sales as the full proceeds received have been
utilised to pay down bank borrowings within the Group. The
reduction in bank borrowings within the Group will no doubt
translate to better profit and dividend in the future. With that
adjustment, the Group is pleased to announce that including the
proposed final dividend, the dividend payout ratio for 2019 based
on the adjusted net profit of the Company is 80%.

Annual Report 2019 15