Investment Highlights

• We maintain BUY call on Bermaz Auto (BAuto) with a higher fair value (FV) of RM3.10/share from RM2.77/share previously. This is derived from an unchanged FY24F target P/E of 12x, on par with its 5-year mean. We maintain a neutral ESG rating of 3-star.

• Our FY24F-FY25F earnings have been raised by 12%/4% to account for higher sales volume assumptions and associate contribution together with some fine-tuning to FY26F. We raise FY24F sales volume assumption by 13% to 23.6k units from 20.9kunits while increasing FY25F sales volume assumption by 5% to 22.9k units from 21.7k.

• BAuto’s 1QFY24 net profit of RM100.2mil (-0.4% QoQ, +99.8% YoY) was above our expectations, accounting for 36% of our FY24F earnings and 38% of consensus. The positive deviation was due to higher-than-expected sales volume. As a comparison, 1QFY23 accounted for only 16.5% of FY23 core net profit.

• YoY, the group’s 1QFY24 revenue surged 52% to RM1.1bil mainly due to strong Mazda sales, particularly the CX-30 CKD model which was introduced in March 2023, and continued fulfilment of balance back orders for Mazda 3.

• The impressive revenue delivery stemmed from vehicle sales rising 53% YoY to 6,357 units, thanks to Mazda Malaysia’s robust performance while net profit was further boosted by associate contribution surging 2.2x YoY. Domestically, Mazda sold 4,999 units (+68% YoY), Kia 315 units (+19% YoY) and Peugeot 313 units (-34% YoY).

• On the regional front, Philippines operations reported a remarkable revenue growth of 70% YoY, lifted by a similar 73% increase in car sales to 730 units.

• BAuto declared a 1QFY24 dividend of 5 sen per share, up 2 sen YoY, which translates to a payout ratio of 58%. This accounts for 36% of our FY23F DPS of 14.0 sen, based on a payout ratio of 52%.

• We continue to like BAuto for its robust earnings visibility, supported by a substantial order backlog of 4.5k units comprising 4K Mazda units, 500 units for Kia and Peugeot. This is sufficient to support its sales at least for the next 6–7 months.

• In addition, prospective growth is underpinned by a robust pipeline of new launches and increasing CKD mix. The upcoming launches which could serve as catalysts are the: i) Mazda CX-60 CBU, ii) CKD Kia Sportage and Carens; and iii) Peugeot new 408.

• The group currently trades at a compelling FY24F PE of 8x versus its 5-year average of 12x with an attractive FY24F dividend yield of 6%.

Source: AmInvest Research - 13 Sept 2023