Investment Highlights

• We maintain BUY on Bermaz Auto (BAuto) with a higher fair value (FV) of RM2.77/share (vs. RM2.70/share previously), premised on a FY24F PE of 12x, on par with its 10-year mean. Our FV also reflects an unchanged neutral ESG rating of 3-stars.

• BAuto’s results were above expectations accounting for 17% of our and 14% of consensus estimate due to stronger-thanexpected sales of motor vehicles (CX-5, CX-8, and CX-30). We raise our FY24F-FY25F earnings by 5% to 6% to account for better margin assumptions due to price revision in April 2023 and higher associate contributions. We also introduce FY26F net profit of RM293mil, backed by a conservative growth in revenue of 1%.

• BAuto’s net earnings rose 96% YoY to RM304mil in FY23. The group’s sales of motor vehicles surged 46% YoY to 21,370 units in FY23 as carmakers rushed to fulfill the sales tax-free orders before the registration deadline on 31 March 2023. The higher earnings were also supported by a growth of >100% in associates’ profits, mainly fueled by better performance from 30%-owned Mazda Malaysia (>100% YoY) and 33%-owned KIA Malaysia. FY23 saw a lower share of loss from KIA of RM0.4mil compared to -RM1mil in FY22 as it delivered 1,158 units of cars which was higher compared to the last financial year.

• Domestically, Mazda sold 15,598 units (+30% YoY) while Kia delivered 2,194 units (+6x YoY). Meanwhile, Peugeot sold 1,896 units (+2x YoY).

• On the regional front, the Philippines operations reported a sales growth of 26% YoY in FY23, lifted by a 29% YoY increase in car sales to 1,682 units.

• On quarterly comparison, topline grew 10% QoQ to RM1.1bil in 4QFY23, mainly underpinned by: i) higher revenue from Malaysia (+8% QoQ), which recorded increased car sales of 5,992 units (+10% QoQ), and ii) improved sales in Philippines (+49% QoQ) with 523 units sold (+49% QoQ). Bottomline climbed 15% QoQ to RM100.6mil buoyed by stronger earnings from the local operations (+28% QoQ) and Philippines (+25% QoQ). This was largely driven by improved sales mix of certain Mazda models.

• BAuto declared a 4th interim dividend of 3.5 sen per share in 4QFY23. This coupled with a special dividend of 7.5 sen per share, brought the FY23 dividends to 22.0 sen per share (payout: 85%), translating to a high dividend yield of close to 10% based on a share price of RM2.23/share. Our dividend per share estimate of 13 sen (payout: 54%) for FY24F to FY26F excludes any special dividends.

• BAuto’s outlook is positive. Our channel checks reveal that the group has a current order backlog of 6,000 to 7,000 units as at end May 2023, which is similar to March – April. This indicates that new bookings are still strong. The backlog will be supportive of the group’s revenue for another 5 to 6 months.

• The group currently trades at a compelling FY24F PE of 9x versus its 10-year average of 12x with an attractive FY24F dividend yield of 6%.

Source: AmInvest Research - 13 Jun 2023