Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with an unchanged fair value (FV) of RM2.25/share, based on an FY23F target PE of 13x, at parity with sector average.

• Blitzing our and street’s expectations, BAuto’s 4QFY22 net earnings jumped 93% QoQ and 18% YoY to RM79mil as the group’s revenue hit a quarterly record high of RM897mil (+44% QoQ, +40% YoY). The cumulative FY22 core earning of RM156mil (+16% YoY) was 24% above our forecast and 19% consensus. The positive variance is mainly attributed to higher-than-expected sales volume of Mazda (Malaysia), Peugeot, and Kia marques.

• The group’s 4QFY22 sales volume grew 46% QoQ, bolstered by the ramp-up of Mazda deliveries, especially in March and April, and full quarterly contribution of the Peugeot and Kia brands.

• Separately, the Philippines operation remains profitable (operating income: RM1.1mil vs. RM0.7mil in 3QFY22) backed by sustained sales volume. Meanwhile, associate contribution improved by 45% to RM10mil, mainly driven by better Mazda Malaysia’s performance as demand for Mazda cars in regional markets recover.

• The group declared an interim dividend of 2.0 sen/share and a special dividend of 2.5 sen/share. This brings its cumulative total dividend declared to 8.8sen/share (65% payout based on FY22 EPS), above our expectation of 6.5sen/share.

• Demand for the group’s products remains robust with backlogged orders crossing the 6,000-unit mark (vs. 5,000 units in mid-May). This is after prospective buyers rushed to place bookings as the group decided to honour the sales taxfree pricing for all bookings made before June.

• The strong order book will provide BAuto with sales visibility while the impact of the additional cost could be offset by lower advertising and promotional spending. Additionally, the group’s booking order rate in June remains healthy as demand outstrips supply.

• Despite the strong demand, the shortage of inventories likely will limit the number of vehicles that BAuto could deliver. We gathered the lockdown in China is currently affecting the supply of Mazda’s inventory and a more normalised level of monthly deliveries (1,000 – 1,200 units) is expected for upcoming months. Hence, we made no changes to our FY23FFY25F earnings.

• Valuation-wise, the company is trading at an attractive FY23F PE of 10x vs. its 5-year historical average of 13x (Exhibit 7). The stock also offers a compelling FY23F dividend yield of 5.6%.

Source: AmInvest Research - 14 Jun 2022