Investment Highlights

• We maintain our BUY call on Bermaz Auto (BAuto) with an unchanged fair value (FV) of RM1.74/share, based on 13x FY22F EPS. There is no adjustment to our FV for ESG based on our 3-star rating (Exhibit 3).

• BAuto’s 9MFY21 core net profit of RM67.1mil came in within our expectations but missed consensus, accounting for 75% and 69% of our full-year forecasts and consensus full-year estimates respectively. Core earnings were down 33% YoY despite an increase in revenue to RM1,646.7mil (+13% YoY). Underlying net profit margin was compressed by 2.8 ppts to 4.1% due to the group’s aggressive promotional campaign – free 6 years of warranty and 6 years of free maintenance – which ends on 31 Dec 2020.

• In 9MFY21, BAuto sold a total of 9.8K units of vehicles (+24% YoY) in the domestic market vs. 9MFY20’s 7.9K units. The surge in domestic sales was largely attributed to the Penjana SST exemption from 15 June 2020 to 30 June 2021.

• The group’s operations in the Philippines continued to be a notable drag, recording a 9MFY21 total sales volume of only 811 units (-58% YoY). We believe that the weak performance was predominantly due to the Enhanced Community Quarantine (ECQ), a stay-at-home order from 17 March till 1 June 2020. This was followed by the General Community Quarantine (GCQ) on 1 June 2020, in which selected businesses (depending on industry) were allowed to operate at 50% operational capacity.

• BAuto’s 30%-owned MMSB sank into a loss of RM5.5mil (- 108% YoY) in 9MFY21 as MMSB sold only 5.9K units vs. 11.7K units in 9MFY20. However, it was partially mitigated by Inokom’s 9MFY21 PAT of RM21.8mil (+127% YoY) despite a lower production volume of 12.5K units (-43% YoY) which led to lower revenue at RM112.2mil (-16% YoY).

• BAuto declared a dividend of 3.25 sen/share for 9MFY21, resulting in payout ratio of 56%. We maintain our estimate for FY21F dividend of 4.5 sen, which translates into a yield of 3.4%. The group’s balance sheet continued to improve, sitting on a net cash position of RM354.0mil (or 30.5 sen/share).

• We look forward to the introduction of the CX-30 CKD in 2HCY2021 and the potential win of Kia’s manufacturing, assembly and distribution rights, possibly by April 2021. We believe this augurs well for BAuto’s product line-up and will elevate the group’s sales volume along with its profit margins. We estimate the localisation of the CX-30 will reduce the model’s domestic selling price by RM15.0K.

Source: AmInvest Research - 11 Mar 2021