Investment Highlights

• We maintain our BUY call with an unchanged FV of RM2.60/share on Bermaz Auto (BAuto) based on an FY19F PE of 14x.

• Bermaz announced on Wednesday that its plan to list Bermaz Auto Philippines (BAP) had been cancelled due to the challenging conditions of the automotive market there.

• We believe this will not come as a surprise to the market given the suspension of the plan over a year ago and its efforts to refocus growth in other areas.

• To recap, an IPO for BAP was mooted in 2016 and then delayed indefinitely in June 2017. There was anticipation that BAuto shareholders would be rewarded with a special dividend as part of the cash in BAP was repatriated.

• Two key challenges faced the IPO. Firstly, the group was working to fulfil certain demands imposed by the Philippine Stock Exchange operator.

• Secondly, the Philippine auto market was dealt with a big blow this year in the form of higher excise taxes. This took a toll on Mazda sales there and BAuto sensibly prioritized its growth story to the Malaysian market, essentially reversing the roles the Philippines and Malaysia had played.

• We are positive on the clarity on the cancellation. While we had ceased factoring in the plan (which would affect the minority interest paid out on BAP earnings) since it was suspended last year, this move will accentuate the focus on BAuto’s ongoing strategies.

• We remain conservative on BAP as its auto sector remains sullen. We are projection an FY19 sales growth of 10%YoY to 5.7K units (FY18: 25% YoY to 5.2K units). Sales should improve from the low of 800 units in 1QFY19 with the new CX-3 but the sector is still struggling with the higher excise taxes imposed in January (Jan-Aug passenger cars TIV fell 21% YoY).

• We reiterate the focus on BAuto to be: 1) the foundation provided by the continuing strength in sales of the CX-5; 2) a rising star in 30%-owned Mazda Malaysia (MMSB) which benefits from the manufacturing and exports of the CX-5 and the CX-8 eyed for end-CY2019/CY2020; 3) efforts to fortify sales with key additions on the Mazda 6, CX-3 and upcoming Mazda 3.

Source: AmInvest Research - 29 Nov 2018