Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with a slight tweak to our fair value (FV) of RM1.97 (from RM2.00), based on a CY2022F 13x target PE (sector average). We revise downwards FY22 earnings estimates after imputing lower sales assumptions from the Peugeot brand.

• BAuto’s 3QFY22 net earnings jumped 64% QoQ and 29% YoY to RM42.7mil, on the back of stronger revenue of RM623.1mil (+29% QoQ, +4% YoY). The group’s sales volume grew 29% QoQ, bolstered by pent-up demand after the reopening of the sector’s supply chain.

• However, the cumulative 9MFY22 core earnings of RM79.0mil were deemed slightly below expectations as sales of the Peugeot brand models fell short of expectations. We understand that BAuto held up the deliveries of the 2008, 3008, and 5008 models – after they were launched in November 2021 – as the company worked to ensure the products adhere to its internal quality criteria. Nevertheless, the matter has been resolved and the group has started to recognize sales from these models.

• Notably, BAuto reported its maiden sales contribution from the Kia brand with 157 units of the completely builtup Kia Carnival model sold during the quarter. Separately, the share of associates also improved 125% QoQ, predominantly driven by Mazda Malaysia’s contribution (3QFY22: RM5.0mil vs. 2QFY22: RM0.1mil), signifying an improvement in regional markets’ sales.

• Dividend. BAuto declared an interim dividend of 2.25 sen, which implies a 61% payout rate of 3QFY22 EPS.

• Earnings revision. We cut FY22 earnings by 8% to reflect the lower sales assumptions from the Peugeot brand.

• BAuto remains our top pick for the sector. The demand for the group’s products is robust with 3,800 units or 3 months’ worth of backlogged orders. The group’s constant product updates bode well as it would translate to a more consistent and predictable sales flow.

• Another potential earnings rerating catalyst for the company is the local assembling of its CX-30 model which could materialize as early as end-2022. The current chip shortage only affects its CBU models and BAuto is currently in discussion with its principal to obtain more inventory allocation.

Source: AmInvest Research - 11 Mar 2022