PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 23 Jan 2020, 9:38 AM


Bermaz Auto Berhad - Delays in Pricing Approvals Drag Earnings

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Bermaz Auto (BAuto) recorded lower net profit of RM20.4m (-72% YoY) in 2QFY20. This was dragged mainly by its domestic operations as delivery for the new CX-5 facelift and all new CX-8 models were delayed by the resolution of certain pricing issues. Earnings in the previous corresponding period were also higher due to the “tax holiday” period, exacerbating the YoY drop. For 1HFY20, core net profit was at RM73.2m (-41% YoY), after excluding one-off expenses related to the Employees’ Share Scheme (ESS) amounting to RM2.3m. Results were below our and consensus expectations, accounting for only 29% and 31% of full year estimates respectively. Given slower volume from its domestic operations and lower-than-expected income from its associates, we adjust downwards our earnings by an average of 20% for FY20-22F. Consequently, we lower our target price to RM2.51 (previously RM2.80), as we also roll-over our valuation to FY21F EPS, though still tagged at a 13x multiple. Our Outperform call is retained. BAuto declared a second quarter interim dividend of 2.75 sen, bringing its DPS to 6 sen for 1HFY20 (vs 1HFY19: 6.25 sen).

  • Lower sales volume from domestic operations. Revenue for 2QFY20 declined 34% YoY to RM457.2m, from RM690.3m in 2QFY19 due to lower sales volume from the domestic operations (-47%). Its domestic operations were dragged by the expected reduction in demand for the phased out CX-5 model, in favour of the new facelift CX-5 model that was launched in 30 September 2019. Despite the new launches of the CX-5 and new CX-8 (i.e. launched in early October 2019), delivery of the vehicles was delayed by the resolution of certain pricing issues. To note, the Group recorded zero sales of CX-8 vehicles during the quarter. We understand that BAuto only started invoicing its CX-8 in mid-November. Its Philippine operations reported higher sales of RM84.3m (+8.4% YoY) however, as it recorded increases in sales volume (+0.7%). This is owing to the shift in sales mix from the lower range Mazda2 to the all new Mazda3 model that was launched during the quarter. Overall, the Group remains optimistic of its 2H sales, underpinned by recent launches of new Mazda3 (July 2019), CX-8 (Oct 2019) and facelift of CX-5 (end-Sept 2019) as well as expected launch of the new CX-30 in mid-January 2020.
  • Lower contribution from domestic operations and MMSB. BAuto reported a 2QFY20 net profit of RM20.4m compared to RM73.9m in 2QFY19. This is largely due to lower sales volume from the domestic operation as well as lower margin arising from the absorption of higher costs on the new facelift Mazda CX-5 model. Strengthening of the Japanese Yen against the Ringgit also partly dragged its earnings. Sales volume composition for its locally-built units (CKD) for the domestic market declined to 69%, compared to 75% in 2QFY19. Meanwhile, income from its 30%-owned Mazda Malaysia (MMSB) declined 63% YoY to RM6.2m, bringing its share of associates’ profit to RM15.2m in 1HFY20 (vs RM23.1m in 1HFY19). This is on the back of the lower vehicle sales volume (-44%). On the brighter side, its Philippines unit saw margin improvement from 3.8% to 6.2% (Table 2).
  • Dividend. BAuto declared a second interim dividend of 2.75 sen per share (2QFY19: 3.75 sen/share), to be payable on 17th February 2020. This brings its 1HFY20 dividend per share to 6 sen, translating to a 98% payout ratio.

Source: PublicInvest Research - 11 Dec 2019

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