Investment Highlights

• We maintain our BUY call on Bermaz Auto (BAuto) with an unchanged FV of RM3.16/share based on an unchanged FY20F PE of 14.0x.

• BAuto’s FY19 core net profit of RM263.1mil was in line with our expectations but exceeded consensus forecast at 106%. BAuto’s higher net earnings were backed by a splendid 25% YoY revenue growth to RM2.5bil.

• Profitability margins improved across all levels for the group on a YoY basis, translating into a core EPS of 22.8 sen/share. Core net profit margin was 10.6% for FY19. This was due to a favourable sales mix towards high-value models as well as benefitting from the forex movement. These have resulted in a stronger operating margins and a 7% YoY increase in ASP for vehicles sold in Malaysia.

• On a full-year basis, BAuto sold a total of 15.8K units of vehicles in the local market, which was an impressive 40% YoY rise compared with 11.3K units in FY18. The all-new CX- 5 took up 10.8K units or 68% of the group’s total sales in Malaysia. This was attributed to the tax holidays implemented in June to August last year and the group’s promotional offers to absorb the SST for bookings of vehicles placed before September 2018.

• However, sales in the Philippines did not do as well. The group sold 3.2K units of vehicles in FY19 compared with a total of 5.2K units in FY18 (-39% YoY). The decline in the Philippines was due to a supply constraint of the Mazda 3 and the Tax Reform for Acceleration and Inclusion (TRAIN) law which has caused an hike in car prices. The group guided that its Philippine operations will continue to be sluggish in FY20 amidst the implementation of TRAIN.

• The group’s 30%-owned MMSB achieved a record-setting PAT of RM151.0mil (+189% YoY) for FY19. MMSB sold a total of 21.9K units of vehicles for FY19 compared with 14.9K units in FY18 (+47% YoY). This was largely underpinned by the ramped up production of the CX-5 due to the high local demand for the SUV throughout the tax holidays and the promotional offer period.

• On the other hand, Inokom achieved a 26% YoY improvement in revenue to RM261.4mil for FY19. This was backed by a 32% YoY increase in total vehicles sold at 37.6K units for the year. Despite all these, we witnessed Inokom’s earnings dipping 6% to RM19.8mil for FY19.

• BAuto declared a total all-time high dividend of 21.3 sen/share for FY19, which translates to a dividend yield of 8.9% and a payout ratio of 94%. The group’s balance sheet remains healthy with a net cash position of RM320.2mil at the end of the financial year.

Source: AmInvest Research - 13 Jun 2019