Review

• Bermaz Auto Bhd (BAuto)’s 1QFY24 results beat expectations. The core net profit increased 99.8% YoY to RM100.2mn on the back of a 51.9% increase in revenue. The commendable results were mainly spurred by the CX-30 CKD mode, which was introduced to the domestic market in March 2023, and the continued fulfilment of backlog of Mazda 3 sales.

• 1QFY24 sales volume increased by 53.5% YoY to 6,648 units (Malaysia: 5,918 units, Philippines: 730 units). Note that the total combined sales volume of CX-30 CKD and the Mazda 3 constitute about 38% of total sales volume for the Mazda domestic operations. The EBIT margin also improved to 12.0% (vs. 9.8% in 1QFY23) as a result of a favourable sales mix.

• The board declared a first interim dividend of 5.0 sen/share for the quarter under review (vs. 1QFY23: 3.0 sen/share).

Impact

• We tweak FY24 and FY25 earnings upward by 14.9% and 0.6% after incorporating the higher-than-expected 1QFY24 results and revising average selling price and sales volume assumptions higher.

Outlook

• We expect the strong sales momentum to continue in the coming quarter as the group still has a backlog order of close to 4.5k units. However, we expect the sales volume to soften in 2HFY24 due to the absence of sales tax incentives. In addition, the tighter financial conditions and interest rate hikes may result in weaker consumer sentiment.

• Meanwhile, we believe the constrained semiconductor inventory will chug along well in 2023 as supply chain bottlenecks recede and automotive players should be able to increase productions in the future.

Valuation

• The target price for BAuto is raised to RM2.48 (previously RM2.36), based on CY24 PER of 11x. With the total potential upside of more than 12%, we upgrade BAuto to BUY from Hold.

Source: TA Research - 13 Sept 2023