Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with an unchanged fair value of RM1.80/share based on an FY22F PE of 13x.

• BAuto’s FY21 core net profit of RM133.9mil came in above expectations, beating ours and consensus estimates by 50% and 40% respectively. We maintain our FY22–23F earnings estimates.

• FY21 core net profit was up 26% YoY, backed by an increase in revenue to RM2.29bil (+30% YoY). Net profit margin rose to 10.4% in 4QFY21 after the group reverted to the free 5 years of both warranty and free maintenance (from 6 years) starting 1 Jan 2021.

• In FY21, BAuto sold a total of 13.4K vehicles in the domestic market, which was a 42% YoY increase compared with FY20’s 5.7K units. The jump in domestic sales was largely attributed to the Penjana SST exemption which commenced in 15 June 2020. The sales tax exemption has been extended till 31 December 2021.

• The group’s operations in the Philippines continued to be a notable drag, recording an FY21 total sales volume of only 1.2K units (-44% YoY). We believe that the weak performance was mainly due to two reasons: 1) the higher car selling prices from the implementation of the “TRAIN” law in early 2018; and 2) the Enhanced Community Quarantine (ECQ), where the nation was under lockdown on multiple occasions from 17 March 2020 till present.

• BAuto’s 30%-owned MMSB’s earnings contribution shrank to RM38.2mil (-51% YoY) in FY21 as MMSB sold only 9.8K units vs. 17.0K units in FY20. However, it was partially mitigated by Inokom’s improved FY21 PAT of RM23.3mil (+54% YoY) despite lower production volume of 17.6K units (-31% YoY) which led to a decline in revenue to RM69.4mil (-8% YoY).

• BAuto declared a dividend of 6.5 sen/share for FY21, which translated into a payout ratio of 56% and a yield of 4.9%. The group’s balance sheet remained healthy with a net cash position of RM355.9mil (or 19.5 sen/share) as at 31 April 2021.

• We continue to be positive on BAuto’s outlook as it is on track to be a prominent non-national automotive player in Malaysia with three leading brands under its belt. We are also excited on the third potential Mazda CKD programme (after the CX-5 and CX-8), which will come to light soon (from our ground checks). We expect the third Mazda CKD model to make its debut in 4QCY22.

Source: AmInvest Research - 21 Jun 2021