Investment Highlights

• We maintain our BUY call on Bermaz Auto (BAuto) with an unchanged FV of RM1.79, pegged to an FY21F PE of 13x.

• BAuto’s FY20 core net profit of RM105.9mil was in line with our expectations but slightly below consensus, accounting for 98% and 92% of ours and consensus full-year forecasts respectively. Core earnings were down 60% YoY, partly attributed to a slid in revenue to RM1.76bil (-29% YoY).

• In FY20, BAuto sold a total of 9.5K units of vehicles in the domestic market, which was a 40% YoY decrease compared with FY19’s 15.8K units. The slump in domestic sales was largely attributed to: i) the delay in deliveries of the new CX-5 and CX-8 models caused by pricing issues (which have been resolved); and ii) the movement control order (MCO) which resulted in the closures of all dealerships and showrooms from 18 March till 4 May 2020. We also note that BAuto heavily benefitted from the “tax holiday” in FY19, which boosted sales volume throughout the period.

• The group’s operations in the Philippines were weak throughout FY20, recording a depressed sales volume of 2.2K units (-30% YoY). This was the Philippine’s worst sales performance in more than 3 financial years as it continues to be heavily impacted by: i) rising costs from the implementation of the “TRAIN” law in early 2018; and ii) the enhanced community quarantine in the Philippines in response to Covid-19 from 17 March till 15 May 2020.

• BAuto’s 30%-owned MMSB recorded a lower FY20 PAT of RM78.1mil (-48% YoY). In FY20, MMSB produced 17.0K units vs. 21.9K units in FY19. On the other hand, Inokom posted a lower FY20 PAT of RM15.1mil (-24% YoY). It registered a lower production volume of 25.5K units (-32% YoY) which led to a decline in revenue to RM166.9mil (-36% YoY).

• No dividends were declared in 4QFY20, cumulating to FY20 dividend of 7.45 sen/share. This translates into a payout ratio of 88%.

• We expect BAuto’s earnings to improve in FY21F with the implementation of the National Economic Recovery Plan, which entails a 100% and 50% sales tax (SST) exemptions on CKD and CBU cars respectively from 15 June until 31 December 2020 – which will be fully reflected in the group’s FY21F. Our BUY call is also premised on the strong recovery of earnings in FY21F from a very low base in FY20.

Source: AmInvest Research - 12 Jun 2020