Investment Highlights

• We maintain our BUY call on Bermaz Auto (BAuto) with a higher FV of RM1.70/share (from RM1.61/share previously) based on a rolled-over FY22F PE of 13x. We reduce our FY21–23F net profit forecasts by 39%, 5% and 7% respectively after lowering our assumptions for: i) sales volume for the group’s Philippine operations; ii) profit margin; and iii) associate earnings contribution.
• BAuto’s 1HFY21 core net profit of RM33.7mil missed expectations, accounting for only 24% and 29% of ours and consensus full-year forecasts respectively. Core earnings were down 53% YoY despite higher revenue to RM1,048.7mil (+6% YoY) as a result of a weaker 1QFY21 – largely due to the MCO, which resulted in closures of all car showrooms and service centres from 18 March till 4 May 2020. Its profit margin was compressed by 4 percentage points to 3.2% and we understand that this was due to the group’s aggressive promotional campaign offering 6 years of warranty and free maintenance.
• In 1HFY21, BAuto sold a total of 6.2K vehicles in the domestic market, which was 9% lower YoY compared with 1HFY20’s 5.7K units. The stronger domestic sales were largely attributed to the Penjana SST exemption from 15 June to 31 December 2020.
• The group’s operations in the Philippines continued to be a notable drag, recording a 1HFY21 total sales volume of only 459 units (-63% YoY). We believe that the weak performance was due to: 1) the increased car selling prices from the implementation of the “TRAIN” law in early 2018; and 2) the enhanced community quarantine” (ECQ) where residents were required to stay home from 17 March till 1 June 2020.
• BAuto’s 30%-owned MMSB sank into a loss of RM22.4mil (- 151% YoY) in 1HFY21 as MMSB sold only 2.7K units vs. 7.6K units in 1HFY20. However, the loss on associate earnings was mitigated by Inokom’s stellar performance, recording 1HFY21 PAT of RM13.1mil.
• BAuto declared a dividend of 2.9 sen/share for 1HFY21, which translates into a payout ratio of 60%. We estimate a total FY21F dividend of 4.5 sen and a yield of 3.0%. The group’s balance sheet improved tremendously – sitting on a net cash position of RM226.6mil (or 19.5sen/share).
• We look forward for the introduction of the CX-30 CKD and the potential win of both the Kia assembly and distribution rights in CY2021. We believe this will boost the group’s product lineup and its sales volume, which will be positive in the long term. Maintain BUY.

Source: AmInvest Research - 11 Dec 2020