Investment Highlights

• Our BUY call on Bermaz Auto (BAuto) is maintained with a higher fair value (FV) of RM2.51/share (from RM2.25/share previously), as we roll forward our valuation base year to FY24F from FY23F.

• Our FV is premised on FY24F PE of 12x, which implies 2-standard deviation above its 5-year mean of 10x, on the back of its robust order book visibility. Our FV also reflects an unchanged neutral ESG rating of 3 stars.

• Our latest channel check reveals that BAuto targets FY23F sales volume of 13,000 – 13,500 units for Mazda Malaysia as well as 2,000 units for Mazda Philippines, in which the group has sold 6,331 units in 1HFY23. The group plans to sell 2,500 units each for KIA and Peugeot throughout the year.

• As at end-December 2022, the group has a solid order book pipeline of close to 7 months for Mazda cars at 8,500 units, providing earnings visibility for 2HFY23 – 1QFY24. Meanwhile, outstanding bookings for the KIA (1,000 units) and Peugeot (450 units) brands represent sales of 1-3 months.

• We gather that out of the total 8,500 outstanding orders of Mazda cars, less than 40% or 3,400 units came from bookings collected during the sales and service tax (SST) exemption periods which ended June 2022.

• Meanwhile, the remaining 5,100 units are orders from post-SST periods. This translates to an average of 1,100 units – 1,300 units per month from July to November 2022.

• As the monthly new bookings steadily reach pre-pandemic levels of more than 1,000 units, this shows that demand for Mazda cars remain robust despite the expiry of the tax-free window.

• In terms of new model launches, we are expecting:
  a) Mazda – CX-30 CKD in 1QCY23,
  b) Peugeot – New e-2008 EV in 1QCY23; New Landtrek in 1QCY23, and
  c) KIA – All-new Sorento in 1QCY23; Carens (KY) in 2QCY23; All-new Sportage in 4QCY23

• Following our housekeeping exercise, we tweaked our earnings forecast lower – FY23F by 1.5%, FY24F by 3.4% and FY25F by 3.7%. However, we keep our sales assumptions unchanged for now as they remain largely intact with the guidance from management.

• The group currently trades at a compelling CY23F PE of 10.2x versus its 5-year peak of nearly 13x while offering an attractive dividend yield of 6%.

Source: AmInvest Research - 13 Jan 2023