Investment Highlights

• We maintain BUY call on Bermaz Auto (BAuto) with an unchanged fair value (FV) of RM2.25/share, based on FY23F PE of 13x - 1.5 standard deviation above its 5-year mean of 11.4x given its robust order book visibility. Our FV reflects an unchanged neutral ESG rating of 3 stars.

• BAuto’s 6MFY23 core net profit (CNP) of RM116mil was largely within our expectations at 58% of our FY23F CNP and 62% of consensus estimate. The 6M earnings accounted for 53%-61% of FY16-17 full-year CNP. It is noteworthy that first half CNP to the full year earnings has been fluctuating in FY18-FY22, from 30% in FY18 to more than 50% in FY19-FY20 and down to 25% in FY21-22.

• The group declared a second interim dividend of 3.5 sen/share for the quarter under review, bringing its 6MFY23 dividends to 6.5 sen/share. This was within expectations.

• YoY, the group’s 6MFY23 revenue rose by 86% as sales of motor vehicle division jumped 91%, on the back of continued deliveries of substantial bookings secured prior to the expiry of SST exemption on 30 June 2022. Year-to-date, sales volume soared 82% YoY.

• Meanwhile, 6MFY23 CNP also rocketed 3x YoY due to the higher sales volume and better sales mix in its Mazda operations coupled with a stronger MYR/JPY, as well as higher contributions from its PEUGEOT and Kia operations. Also, its associate has churned out commendable results of RM13mil (+6.6x YoY) on higher sales volume (+77% YoY).

• 2QFY23 revenue was up 62% YoY at RM783mil, which drove CNP by 2.5x YoY to RM66mil.

• Likewise, 2QFY23 topline grew 9% QoQ on volume gains from its Mazda CKD sales mix vs. CBU sales mix, which was dragged down by shipment delays from Mazda Japan. Subsequently, bottomline increased 31% QoQ in line with the better sales mix.

• BAuto’s Philippine operation has also reported sales growth of 32% YoY in 6MFY23, underpinned by more units sold (+53% YoY). The group’s continuous new model roll-outs alongside its promotional 50% SST absorption campaign until the end of 2022 are likely to support sales orders in the near-tomedium term.

• In addition, shortages of chips and components are expected to ease further following the recent announcement of China’s zero-Covid policy relaxation, which will serve as a boon for automakers.

• The group currently trades at a compelling CY23F PE of 10.7x vs its 5-year peak of over 13x and offers an attractive dividend yield of 6%.

Source: AmInvest Research - 9 Dec 2022