Investment Highlights

• We maintain our BUY call and an FV of RM2.60/share on Bermaz Auto (BAuto) based on an FY19F PE of 14x. We retain our FV and earnings projections for BAuto. BAuto’s core net profit of RM50.4mil in 1QFY19 met expectations making up 24% of our FY19 projection and consensus estimate.

• Earnings were weaker on a QoQ basis. Revenue dropped 15% QoQ while core net profit was down 12% QoQ. While sales in Malaysia benefited from two months of the tax holiday, the group highlighted that its manufacturing arm (30%-associate MMSB) was taken by surprise by the zerorization of the GST and had struggled to meet the surge in demand.

• We believe that the group has exhausted its allocation for the CX-5 and other key models (selling close to 700 units/month currently), with the waiting list for Mazda cars now estimated to be at 7-8K.

• MMSB’s production volume fell 45% QoQ to 3.6K units, with nearly two-thirds devoted to Malaysia and the rest allocated to imports (mainly Thailand). This has resulted in the group’s lower topline and associate earnings.

• BAuto still achieved a commendable bottom-line for 1QFY19 despite of a sequential decline on QoQ basis. Its net profit margin is at is strongest point in at least three years contributed by the stronger ringgit against the yen and the improvement in sales mix.

• On year-on-year basis, revenue improved 24% and net profit was up 123%. This was supported by the stronger performance in Malaysia with a higher sales and margins thanks to the new CX-5. Notably, CX-5 sales in Malaysia were up 166% YoY to 2,037 units from a low of 766 units in 1QFY18.

• The group’s improved performance in Malaysia has helped to cushion the decline in Philippines’ sales. Volume in Philippines has been affected by the higher excise taxes imposed from Jan 2019 but we note that margins have started to recover. Also, it should benefit from the new CX-3 which last accounted for 12% of its sales there.

• Going forward, the group said it would see margins affected by the move to absorb the SST cost (on orders made prior to Sept 1) but it plans to manage this by reducing marketing expenses and dealer incentives which may have spiked during the sector’s big push for sales during the tax holiday, thus building a strong sales pipeline.

• The group has declared a first interim dividend of 2.50 sen/share. The high dividend yield of 8.0% based on a payout assumption of 90% and is partly attributable to the recent decline in its share price.

Source: AmInvest Research - 14 Sept 2018