Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with a higher fair value (FV) of RM2.63/share (vs. RM2.51/share previously), premised on a FY24F PE of 12x. This is on par with its 10-year mean. Our FV also reflects an unchanged neutral ESG rating of 3 stars.

• We raise our FY23F earnings for BAuto by 27% and FY24F-FY25F forecast by 6%-7% after factoring in higher sales volume assumptions and associate contributions. 9MFY23 earnings of RM203mil were 27% above our estimate and 20% ahead of consensus due to higher-than-expected sales of motor vehicles.

• 9MFY23 earnings rose by 2.6x YoY to RM203mil as sales of motor vehicles surged 77% alongside better sales mix and appreciation of MYR/JPY.

• Mazda sold 10,771 units (+44% YoY) while Kia delivered 1,451 units (+9x YoY) in 9MFY23. Also, Peugeot sold 1,474 units (+3.5x YoY). Mazda Malaysia also performed well as reflected in the 3.3x YoY climb in the share of earnings in 9MFY23. Sales of spare parts increased by 39%.

• 3QFY23 topline grew 25% QoQ to RM976mil while bottomline improved by 33%, underpinned by resilient sales of vehicles during the reviewing quarter.

• On the regional front, Philippines’ 9MFY23 operation reported sales growth of 25% YoY, lifted by a 34% increase in units sold.

• BAuto declared a 3rd interim dividend of 4.5 sen per share in 3QFY23, bringing 9MFY23 dividends to 11.0 sen per share. We estimate a total dividend of 12.0 sen per share (raised from 10 sen per share previously) for FY23F, which translates to a decent yield of nearly 6%.

• BAuto has a current order backlog of nearly 7,000 units, of which only 15% are from the SST exemption bookings and these would be fulfilled by end of March 2023. The backlog could last for 5-6 months.

• We remain positive on the group for its: 1) large backlogs and 2) sustainable order book. Monthly delivery since September 2022 has consistently hit above 1,000 units and we understand that new orders for February 2023 would be close to 2,000 units. We believe that the strong orders were supported by the newly launched CKD Mazda CX-30. Overall, BAuto targets a sales volume of 14,000 units for FY23F, which is in line with our estimates.

• The group currently trades at a compelling CY23F PE of 10x versus its 10-year average of 12x. FY23F dividend yield is attractive at 6%.

Source: AmInvest Research - 14 Mar 2023